白羊座代表哪些花:TESCO CASE STUDY

STRATEGICMANAGEMENT

TESCOCASE STUDY

SectionA

Q1:

PESTEL analysis provides a useful point for general overview of the externalenvironment. There are following five areas:

Political:

l       UK government regulations made Tesco build difficultly out-of-town superstores.

l       Superstores’ expansion wasconstrained without obtaining permissions from regulatory authorities.

l       Actions from Thailandgovernment-- protect local retailers

l       Some political opposition inthe Republic to the outside retailers

The regulations from UKgovernment restricted the development of Tesco in Britainand forced Tesco to explore market share outside Britain. However, when Tesocexplored the international market, policies from local government has an effecton it so that Tesco had to balance the issue between cheaper goods and thepreservation of local jobs.

Socio-Cultural:

l       British-style convenience foodswere popular in the Irish market

The consumption pattern is changing in the foreign industry. Itbrings new chances to grow its international market share.

Economic:

l       Declining profits on food

l       The profits from theinternational business were gradually growing year by year. (Appendix 2)

l       Tesco’s price reduction reducedthe food price inflation well below the national rate.

Due to facing the declining profits on food, Tesco began to explorenon-food items so that it brought Tesco 5% share of the UK non-food market during 2003. Thegrowing of international business profits showed globalization is a tremendous opportunity to explorenew market. In addition, Tesco’s low price strategy had a great effect on thefood retail industry.

Technology:

Tesco changed and adopted new technology to manage its operationsprocess, such that Logistics and operations of Metro Stores were highlycomputerized. In addition, Tesco combined with improvements in informationsystems to increase efficiencies in distribution at its different development stages,such as SBO (Sales Based Ordering) system, single vehicle and warehouse system,just-in-time system, automated order picking system, Electronic DataInterchange (EDI) and General Electric Global Exchange Services (GEX). Thesesystems were used to manage the distribution and link closely the suppliers sothat Tesco can improve its operation process. On the other hand, with thedevelopment of Internet technology, Tesco firstly started an online service. Ithelps Tesco gain more chances to explore its grocery market.

Legal:

l       Decision from the EuropeanCourt of Justice--Tesco could not import jeans made by America’s Levi Strauss from outsidethe European Union.

The legal decision forced that Tesco didn’t sell them at cut-rateprices. It has an effect on Tesco’s low price strategy. 

Environmental:

Not applicable

Conclusion:

Government regulation and technology show the key environmentaldrivers for change. These key drivers for change in the industry force Tesco toface the globalization of industry so that the development object of Tesco isto explore the international retail business in the future.

5 forcesanalysis is used to analyse the competitive industry environment.

The Threat of New Entrants – Low

Within the retail industryeconomies of scale can be achieved by the larger retailer. Tesco had largescale in the retail industry, so new entrants have to be on a large scale inorder to achieve low costs levels. However, new entrants have to face the highrisk.

The Bargaining Power of Supplies－Low

Fooditems suppliers have low buying power due to their homogenous nature andproduct little differentiation.

The Bargaining Power of Buyers－Low

Tesco hasdifferent stores formats in order to serve its different target customers. However,in food retail industry, small companies and private buyers are unlikely tohave much bargaining power with Tesco.

The Threats of Substitutes – High

There aremany competitors in the retail industry. They can provide similar products tocustomers.

According to Porter—if 3 or moreof the forces are high, the whole industry is unattractive. However, there isonly force is high, and it shows the retail industry is attractive for Tesco.

Q2:

Unique Resource

Physical Resources

l       Variousstore formats and a lot of stores in UK (Appendix 1)

l       Tesco’sstores on a nation-wide scale are as warehouses.

l       Ownershipof 74% stake in Global TH, in Hungary,ownership of 96% stake in Savia SA in Polandand ownership of 75% stake in Lotus in Thailand

Intangible Resources

l       Excellentgeographical location of various store formats

l       Goodpartnership with suppliers, including 1,300 suppliers by 1995

l       750,000 online registered customers

Financial Resources

The current performance of Tesco is that the gross profit in 2002 and in2003 is respectively 1,354 ￡m and 1,541 ￡m. However, Tesco’s financial performance went to deteriorate severalyeas ago after the acquisition. It seems to show acquisition has a great effecton Tesco’s financial performance during the period.

According to the calculation, the two important financial ratios areshown.

Important Financial Ratio

2003

2002

Current Ratio

0.83:1

0.74:1

Gearing Ratio

0.7:1

0.6:1

Tesco hasthe current ration much nearer to 1:1 and shows the liquidity of Tesco is notvery poor. The gearing of Tesco is around 60% and 70% and if the gearing rationreaches 100%, banks and other lenders do not accept the fact. Therefore thereshows gearing to an acceptable level.

Primary Activities

Operations

Another group of upstream opportunities, the production area ofTesco is product and service orientated. The operations at Tesco enableproducts and services to be provided. The operations are opening every day inaccordance with trading hours and store formats (different store formatsrequire different trading hour periods), assorting the products, pricing theproducts, delivering. The different operation exists among the Tesco’s differentstore formats. For instance, the product assortment attracts young and singlecustomers at Metro stores. However, it offers non-food items at Tesco extra. Itreflects Tesco’s different store formats serve different target customers. Inorder to obtain future competitive advantage, Tesco has an attempt to grow byexploring outside Britain.For example, it has a successful acquisition to develop its internationalmarket, which essentially adds competitive advantage.   

Marketing & sales

The part is classed as downstream, as the part of the value chain,it analyses what Tesco’s customers want and need. When Tesco faced with decliningmargins on food, it was looking for the way to catch customers’ attention. Infact, Tesco accomplished the task via various campaigns of different stages. Forexample, Tesco conveyed the new message about a value for money in 1993. At thesame year, Tesco introduced “the price is dropping on your weekly shopping”campaign. Customers felt a purely price oriented message first time. Tesco hadan attempt to reinforce its image as a price competitive retailer. In 1998,Tesco replaced the ‘Unbeatable Value’ campaign with its ‘Unbeatable offer’ and ‘LowPrice’ campaigns. It clearly shows customer expectations concerning Tesco’sactions is that Tesco can provide the lower price products. The ability to loweringproducts prices is Tesco’s competitive advantage.

Service:

Tesco became the first retailerin the UKto start on-line service. The new service provides new opportunities to developdomestic retail market.

Outbound logistics:

For Tesco on-line service, out ofwarehouse is as distribution way and it saved a lot of money on constructionwarehouse. The out of store approach facilitated the online service so that thevalue is added.

Inbound logistics: not applicable

Support Activities

Technology development

Technology development can have a great effect on an orangisation. Theability to new product and service that satisfy customer needs remains a keycompetitive advantage. For instance, Tesco provides an online service and deliverproducts.  Technology developments canalso strengthen the relationship between supplier and organization. Forinstance, Tesco adopts some advanced computer systems to manager its orderingchannel so that it builds a close relationship with suppliers. Tesco brings anew solution with the exact and fast supply network. Finally technologicaldevelopments are resolving many delivering and supplying issues. For instance,on-line service is eventually accessed from homes. The delivery time isshortened by the store’s computer system. The systems enhance Tesco’scompetitive advantage.

Human resource management

Human resource management is regarded as a very important role. Itcovers recruitment, training, management development and the reward structures.When Tesco faces the rapid international business development, its one of themain task is management of human resources. Tesco realizes attracting excellentstaff and retaining them is a key success factor. To achieve the goal, Tescohad replaced its dependence on expatriate staffs with training local managersin international business.

Infrastructure:

Tesco introduced single vehicleand warehouse system. After modifying eight such distribution centers, the newdistribution centers adopted just-in-time system in the mid-1990s so that itsaved a lot of distribution and administration costs. During the developmentTesco, a lot of stores are viewed as warehouse to distribute the products whichare ordered by the customers. Such infrastructure saves a lot of cost.

Procurement: notapplicable

Core Competencies

There are three areas to distinguish the major core competencies. Thefirst area is Customer value. Tesco offers the lower price than that of itscompetitors and own-label products. The second area is competitivedifferentiation. Tesco is able to build the close relationship with thesuppliers. For example, Tesco provides suppliers with relevant information andthe suppliers join with Tesco to plan and evaluate promotion. The suppliers areregarded as the partners and they help Tesco to coordinate products andservices. The third area is extendable. Tesco applies the latest I.T. system topick and deliver the products to the customers from on-line service. Itenhances the productivity and reduces the delivery cost. The stores are used aswarehouses to build Tesco’s distribution network for on-line service so thatTesco saves a lot of time and money of constructing its warehouses.

Linkages and the value system:

Linkages between informationtechnology and operation to facilitate the improvements of supply system anddistribution system. It improves the efficiency of Tesco’s operation.

Cultural Web

Tesco’s main culture is the power culture. It is proved that TerryLeahy was appointed as CEO. His appointment seems to get management right fromthe traditionally dominant purchase managers in the internal orangisation. Itshows the management right is dominated by a small group, which are purchasemanagers. The following factors that influence the culture:

Stories:

Terry Leahy was appointed as Tesco’s CEO. It seems to make a victoryfor Tesco’s marketing staff in an internal power struggle.

Routines and Rituals:

Tesco emphasizes on the price and value for money.

Power structures:

Tesco’ chairman and CEO make strategic decisions to determine Tesco’sfuture. For example, when MacLaurin was appointed as Chairman, he immediatelystarted to improve Tesco’s image and a lot investment plan were carried out. Inaddition, these strategic decisions are passed on by the local managers withthe development of Tesco’s globalization.

In addition, other factors, such as symbols, organizationalstructure and control systems, are not applicable.

Competitive positioning:

Tesco identifies the target customers by designing different storeformats in order to decide its competitive positioning. The whole market is divided bythis way. However, compared with other competitors, such as ASDA, Sainsbury andso forth, Tesco’s competitive positioning is not obvious although Tesco is aleading player in the retail industry.

Q3:

Strategic Options

It is necessary to briefly analysethe current Tesco’s approach before analysing two strategic options availableto Tesco.

Porters Generic Strategy

Atpresent, Tesco seems to follow differentiation approach using different storeformats to distinguish its product. However, Tesco uses various systems, suchas store’s computer system, to save the cost of picking and delivery so that itprices lower than other competitors. It seems to follow a low cost approach.However, Tesco has difficulties with its on-line service, such as slow-loadingpages and crashes.

To assess the strategies, Ansoff market option matrix is usedto provide a frame workto assess the strategic options.

Market Option Matrix

Option One –Toexpand the international retail business market into other Asian markets.

It isregarded as market development. The justification for this strategy is asfollows. The government regulation restricted the development of Tesco in thelocal area, and international market expansion will open a great amount of newtarget market to generate potential growth. However this strategy will be itsrisky. If it is implemented, Tesco has to experience cultural difficulties intrades in Asian markets.

Option Two –Todiversify into non-food item.

Thesecond option is product development. Tesco has strong competitive position inthe food business and it was taking a serious look at services, such asoffering accounts and credit cards. The next step will show very close synergy with utilitydepartments. It will be a new service appearing the convenience-store chain. Comparedwith the food item, these non-food items are Tesco’s new products and services.

Selection of Strategy

The international retailmarket expansion optionis the most attractive option for Tesco because:

l       It is the only option which will provide long termgrowth and development to Tesco. The other option can be thought as short termsolutions to the problem because Tesco faced the declining profits on food inits domestic market. It just once again began to focus on non-food items.

l       The implementation of this strategy should besupported by strong cash flows and a large financial challenge will be involvedin long term. In addition, Tesco had to face the problems. For instance, how toobtain the appropriate suppliers? Is it necessary to acquire the local retailchain? It seems to carry out a long term plan. However, the other option can beimplemented relatively fast.

l       The option is reflected in Tesco’s objective thatglobalisation is a good opportunity of new growth. Although the skills which gainedat the domestic market do not guarantee success in international markets, theexperience from building the relationship with suppliers is useful for obtainingthe new partnership with local suppliers. In addition, Tesco may take advantageof local knowledge, Human resource and so forth if it hopes to make asuccessful in the international market. For instance, Tesco may acquire thelocal retail chain to build up its distribution outlets so that it would savecost.

Thereforeinternational retail market expansion is the strategy which Tesco shouldimplement. 

SectionB

Q3:

What needs tochange?

OrganisationalNew Structure:

When the Asian expansion strategyis implemented, the original organisational structure is changed although it issimilar to the existing organization structure. This is because that the Asiandivision will be faced with different challenges of local competitors. It isnecessary to form a decentralised and formal organisationstructure to empower the different market divisions to manage their performances.

NewStructure:

It is necessary to pay moreattentions to the communication process among the different retail divisions inthe new organizational structure. The communication of information may bedisturbed by the wide geographical areas.

Culture:

The current culture of Tesco is the power culture. After implementing this strategy, the power will be empowered to themanagers from retail divisions. These retail divisions will have some responsibilities and autonomy rights. However, it is important that the organisationalculture should remain coherent although the organization will involve foreignstaffs. 

The Change Process

The Lewin’sThree-Stage Model is used to analyse the change process. Three stages areunfreezing, moving to a new level and refreezing.

Unfreezing the organisation within 0-6 monthsas the first stage:

ü       Driversof Change:

l       The desire of international expansion from the top managementlevel

l       The desire of organisation growth in the long term

l       Mangers from the retail division hope to get morepower to manage their departments

ü       Resistorsof Change:

l       Needto recruit manager with experience from local area

l       Strong competitions from competitors restrainTesco’ growth 

l       Top management level does not want to empower theemployees

ü       Howto overcome Resistance:

l       Minimizing its dependence on non-local employeesand using head hunter firm to employ the appropriate candidates

l       Strengthening and retaining the competitiveadvantages

l       Implementing the fluent communication

Moving the organisation within 6-12 months as the second stage:

During the stage, all changes will be implemented. The organisation willdevelop its changes to make up its shortages.

Refreezing the organisation as the last stage:

At this stage, once the organisation finds the satisfactory situationfor the changes, the changes are regarded as the desirable things.

Resources Allocationsand Control

Currentresources:

l       Knowledge and competence from domestic retailmarket and central Europe

l       The close relationship with suppliers

l       Financial supporting

l       Large economic of scale—taking over retail chainsin its different divisions

l       It is enough to use information system to manage itssupplying and distribution

After implementing this strategy:

ResourcesNeeded:

l       Building new distributions and sales outlets

l       Plant, funds, communication skills, controlling andmanaging technology

l       Senior management level

l       Setting up the good relationship with localsuppliers

How toAcquire:

l       Through partnerships and joint ventures

l       Taking over small competitors

l       Head hunters

l       Acquiring the local retail chains

KSF:

Distributionoutlets and the relationship with local supplier will play a crucial role in this strategy.

Action Plan:

ü       In short term 1 year:

l       Open 2 superstores, average 35,000 Sq. ft. in Chinaretail market

l       Senior management recruitment from local area

l       Development of local suppliers

l       Recruiting general workers per superstores

l       Advertising in local area

l       Administration costs

ü      In longterm 3-5 years:

lLong-termacquisition of local retail chains

l         Building partnership with local suppliers

lDevelopingother store formats

l         75% customer awareness in new market

 (Wordcount: 2900)