Unit 706 Strategic Direction Assignment
1.1Existing strategies aims and objectives of the organizations
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Tesco's strategic aim is to be a zero carbon business by 2050. The strategic aims and objectives are related to the vision statement of the company.The main goal of Tesco is to become and stay the leading retail supermarket by providing the best quality products and services at the lowest possible cost. The first and the primary aim of the company is to increase its profits by maximizing sales. According to research, it has been identified that Tesco's aim is to retain the loyal customers by providing quality products to its customers.This can be achieved by building new stores to attract more customers, and more in-store deals. For the benefit of the average household, Tesco aims to cut down their prices and one of the ways they can do this is by offering bargains to their customers, such as buy one get one free. Another aim of Tesco is to introduce healthier eating products into the wide range of groceries they supply and this will have an advantage of attracting those customers who are interested in healthy eating products.
In addition, a large internet shopping site is also one of the main objectives of Tesco. Their aim is to provide clothing goods, electronics, groceries along with a number of their services online. They may be successful in attracting even more customers if they develop a great online shopping experience and this will help them achieve their biggest objective, which is maximizing sales and profit. Providing jobs to the local community is one more aim of Tesco. In the areas where the stores of Tesco are built, the retail supermarket aims to reduce the level of unemployment.
To achieve its aims and objectives, the organization has identified some values within the business that they have using such as understand to the customers, making their needs priority, act within the business or communities properly. They have also planned six strategic drivers that enable them to create long term value for all its stakeholders. A differentiated brand, eliminate operating costs by finding opportunities, generate cash from operations, building of sustainability profitability, innovation, and maximize value from property are the six strategies drivers. All the aims and objectives of the company have enabled the business to gain success within the market.
1.2Critical evaluation of the component of the current organization strategies
Organizational strategies are a plan that definite how the business will assign resource to support production, marketing infrastructure and other business activities. It has been identified that Tesco has been using corporate strategy to expand its operations in the other countries. The components of corporate organizational strategy include vision, mission, objectives, growth strategies, and so on. The mission of Tesco is to be the champion for its customers or to be the first in the minds of customers when thinking about retail outlet. The vision of the organization is to increase the scope of the business to deliver long term sustainability to its customers. The diversification growth strategy is all about to acquire and retain the customers within the business.
A two-tier strategy is being operated by Tesco. The first includes expansion into non-food products within the market of UK and to create Tesco Personal Finance, for example, by creating strategic alliance with Royal Bank of Scotland (RBS). The second one includes aggressive expansion into overseas grocery markets.
The first part consists of offering financial services products, telecommunications, pharmacy and home and health. With the help of targeted marketing and aggressive pricing, while expanding into riskier and high profit areas with good success, Tesco has continued to maintain its market share in its grocery sales. It offers most of Royal Bank of Scotland (RBS) banking services in its UK stores after setting up a strategic alliance with the bank. An advantage of the stores’ widespread networks has been taken by Tesco. A £71m profit along with 5.6m customer accounts was posted by Tesco Personal Finance, back in 2008. To expand its grocery business into the Middle East, South East Asia, India and Continental Europe is the second part of Tesco’s strategy.
1.3Factors that are effecting the strategies aims on short and long terms
There are quite a few factors that are affecting the strategic aims of the organizational strategy of Tesco in the short and long term. In every country’s economy, the government interferes with factors such as tariffs, trade restrictions, environmental law, labor law and tax policy. The tax has been increased from 17.5% to 20% by the government this year and it has affected the profit of Tesco, big time. The long-term vision, mission and aims, along with profit of Tesco are being affected by it. In addition, Tesco’s revenue is also being affected by interest rates.
Furthermore, a company’s products and operations are also affected by some social factors. Tesco has started to produce more low fat and organic foods such as organic vegetables, organic milk, and skim milk, as a result of the new trend of health consciousness. In order to adapt to the social trends such as recruiting older workers and long term unemployed people as a part of social responsibility, Tesco has had to change its various management strategies.
Moreover, quality and costs can be affected by technological changes. By the use of collective service, online shopping and self-checkout service, customers have avoided being charged for the same product more than one time. From having a huge amount of stock variances, the use of CCTV cameras and security system has prevented Tesco from having a huge amount of stock variances. The growing awareness of the potential impacts of climate change are affecting how Tesco goes about its operations and the products it offers, both diminishing or destroying existing ones and creating new markets. For the products to be labeled with the message of recycling, sustainability, recycling and zero carbon foot prints are the focus areas for Tesco. One more challenging legal responsibility for Tesco is assuring health and safety in all the regions wherever it has expanded or looking to expand. The operations of the company along with the demand for its products and their costs, can be affected by these factors.
2.1Diagnostic and analytical tools
SWOT Analysis for Tesco
Financial Turnaround is one of its biggest strengths as it recovered from an annual loss of £6.4 billion in the annual report of 2015 to an operating profit of £1.9 billion in the annual report of 2020. Adapting to the changing environment, being creative and innovative with its strategies and solid performance during the pandemic are other strengths of Tesco.
One of their weakness is shortage of products. Tesco is rationing some of its items to prevent shortages due to panic buying. A fine of £175,000 for displaying products past their expiry date was paid by Tesco so inventory management is another issue for them. To avoid similar problems, Tesco removed the products and put systems in place to keep a check. Lapses in sticking to the food safety guidelines have major consequences, given the range of food products sold by Tesco, hence, another weakness is food safety issues.
An opportunity for growth is to take measures such as online grocery sales, to prevent the spread of the coronavirus. High rate of unemployment is another opportunity for Tesco to come ahead and hire more people to increase its operations. The rise of meat alternatives is another opportunity and by 2025, Tesco is committing to a 300% increase in sales of meat alternatives.
The biggest threat has been the Covid-19 pandemic, as the virus-related expenses hit £533 million. Brexit and supply chain is another threat as 80% of the imported food sold in supermarkets will be affected by Brexit. Tesco’s supply chain will be negatively impacted by the stymied flow of imported goods from the EU to the UK, with Brexit imposing restrictions at the port of entries. In addition, the revival of Asda poses a serious threat to Tesco’s market share as the new owners of Asda are looking to bring it to their 6000 forecourts across 10 countries.
2.2Expectation of stakeholders and how their expectationinfluence new organizations strategies
For Tesco, all the stakeholders are important. However, they are neither equally powerful, nor equally important. Some stakeholders are far more powerful than others like the chairman, directors and other senior executives.
Managers, employees, executive committee, board and shareholders are the main internal stakeholders of Tesco. Managers and employees are very important for Tesco, like any other organization. Tesco has 450,000 ‘colleagues’ worldwide, as of August 2019 (Tesco, 2019).
The chairman, chief executive, chief financial officer, and a number of non-executive directorsare a part of the Tesco board and they are very important and powerful for the company. Just like this, shareholders are also vital stakeholders for the company. The major shareholders of the company are Schroders plc, Norges Bank and BlackRock with 4.99%, 3.99% and 6.64% holding respectively (Tesco, 2019).
The government, local communities, pressure groups, competitors, creditors, suppliers, and customers are the main external stakeholders of Tesco. In addition, it is working with thousands of producers and suppliers in order to serve the customers with sustainable, healthy and excellent quality products. These producers and suppliers help the company reduce food waste and not just provide the required products. In the UK, Tesco’s main competitors are Iceland, Aldi, Lidl, Waitrose, Co-op, Morrisons, Sainsbury’s, and ASDA. Globally, Carrefour, Amazon and Walmart are the big names challenging Tesco so for it to stay ahead of all this competition, it must try using various strategies like expansion into more cities, various offers, and online shopping.
2.3Existing organization strategies
It is shown by the Tesco VRIO analysis that the financial resources of the company are highly valuable as these help in investing into external opportunities that arise. Tesco’s local products are a valuable resource as they are highly differentiated, according to VRIO analysis. In addition, Tesco’s employees are a valuable resource to the company, as per the VRIO analysis. As it leads to more productive output for the organization, a major part of the workforce of Tesco is highly trained. The retention levels of the company are high as its employees are loyal. Furthermore, the patents are a valuable resource for Tesco as they allow sales without competitive interference and it results in greater revenue. To achieve the existing strategy, it is important for Tesco to continue to progress with the above mentioned factors.
Value Chain Analysis
Based on average weekly spending and frequency of spending, customer loyalty has kind of declined for Tesco. It could be argued that flaws associated with the provision of customer services may have played a certain role, but Tesco’s commercial income scandal, without a doubt, played a major role in causing this decline.In addition, it is difficult for Tesco to provide high level customer services, due to the choice of its cost leadership business strategy. In other words, the focus of Tesco’s business strategy is on cost reduction, while exceptional customer services come of additional costs. To associate the brand with competitive prices, the best quality and wide selection of products is the focus of Tesco’s marketing strategy.
Business Canvas Model for Tesco
To handle daily operations such as electronic shelf labelling, internet selling, intelligent scale, checking out machine usage, Tesco uses IT services.Its suppliers were initially sourced from large brands in the UK. However, now, the organization gets its products from overseas markets as well and this gives it great value for money.Through low prices that are achieved by continuous expansion, selling products at cheap prices and buying in bulk, the company has dominated the retail industry through low prices that are achieved by continuous expansion (Coriolis research, 2011). Tesco has a wide variety of customer segments and strives to satisfy each one of those categories.It endeavors to offer more products and services to its customers through private-label brands and expansion of non-foods. It has also ventured into the service sector through financial and telecommunications services like insurance and banking. Tesco’s various brands are designed to meet the needs of these various brands in the market.
It has been critically identified from the VRIO framework that the financial resources of the company and its distribution network provide a continual competitive advantage to Tesco. It has been analyzed that the cost structure and research & development is a competitive disadvantage of the company. The company has gained its brand image in the minds of customers. It has been critically analyzed that the retention rate of employees is high because company fulfill the needs of employees on individual basis also. With the Value chain framework, it has been found that Tesco uses cost leadership strategy. It means they are manufacturing the products while providing quality products to its customers.
3.1Evaluate and develop a range of strategies to meet strategies aims
Creating new product lines
Reviewing the marketing mix is one step Tesco can take to launch a new line of new farm brand products. This dramatic rebranding of products such as beef, fish, pork and fruit will allow the company to appeal to cost-conscious consumers who did not previously value Tesco’s offerings.
Overhauling product packaging
Tesco must be able to devise new packaging designs and branding campaigns for items in need of assistance. Many of these new rebranding efforts revolve around connections to ranches, farms, and other elements that elicit imagery of home-grown atmospheres. Because of the challenges the brand faced, giving shoppers a more organic and locally-sourced feel in products will be a smart move.
The brand sees a huge need for focusing on “the individual experience” in its resurgence. Tesco’s marketing team should come up with a variety of great marketing ideas for this approach. From deep discounts delivered by email on birthdays to print campaigns delivered directly to the door, customization is a key in the new world of marketing.
Competing with smaller chains
In years past, Tesco did not have to worry much about competing with smaller chains. Today, however, those worries are a necessity. With chains such as Aldi now encroaching more and more on market share, Tesco has been left with no other choice than to fight back.
One of the biggest challenges of the past few years has been to stabilize market share. Fortunately for Tesco, its market share stabilized in 2016 – the first time following the scandals of 2013-14. The company’s shift from traditional marketing to a digital marketing effort across all channels has made this possible.Chains such as Aldi continue to compete on social media and beyond, Tesco must find a way to promote and attract customers from outside its realm.
According to analysis it has been identified that creating a new product line can help the organization to achieve the strategic aims and objectives. It has been critically identified that these strategic options would allow Tesco to fulfill the needs of customers while increasing their satisfaction level. With the help of new design product packaging the company can acquire the new customers but they have to do some investments to design the packaging of a product. It has been critically evaluated that the organization must improve the experience of employees also because they are the only one who can satisfy the customers. While focusing on an individual experience of the customers as well as employees, it enhances the efficiency of the business operations and increasing the loyalty of customers towards the business.
3.2Existing strategies options
Tesco Strategic Options based on vision and mission
- Vision: A vision is an overall view of where the business wants to be. Tesco is a company, which deals with customers and colleagues. Its vision will guide the direction of the organization and how to make strategic decisions. Tesco’s vision is to be the most highly valued business by: the customers they serve, the communities in which they operate, their loyal and committed colleagues and shareholders.
- Mission Statement: The vision, mission statement and corporate goals are all interrelated and identifies what a business is seeking to achieve. Tesco’s mission is “We make what matters better”. Tesco’s Strategic management believes that mission, vision and strategic objectives play a vital role it its may cause a failure of a plan.
In order to help achieve its mission and vision, Tesco has established business strategies
- Expansion: Tesco has already established in the UK, USA, Asia and Europe and has 6531 stores globally. In order to increase its market growth and market share, it continues to open into further new markets.
- Diversification: This is a most risky strategy as organization enters into new market where it has no information available or less experience. The risk could be failure of acceptance of products by consumers not making enough sales. Tesco has diversified its market by launching different non-food products into new markets. Tesco enjoys long-term success due to being focused and Tesco has main core vision, which remains same while the corporate strategies change according to the changing world. Due to competitive global environment, if organizations do not have a clear vision they will lack direction and may not survive longer in future. Tesco has established business strategies in order to help it achieve its vision and mission.
It has been identified that in order to achieve its existing strategic options, Tesco has used organizational strategies such as diversification and expansion. With the help of these two strategic options the organization can meet the revised strategic position. According to analysis, it has been identified that Tesco has been using diversification strategy which enables the company to modify the products or to produce a new products while targeting the new markets. The positive impact of this strategy is to increase in brand awareness. But the organization has to do lots of research to identify the needs and requirements of the new market. It has been critically evaluated that expansion strategy facilitates the organization to increase the market share in the business. But there is risk also to expand the business operations in the other parts of the countries.
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