Different applicable types of Business strategy
Business strategy is the most principal foundation of a business success. In business there are difference types of strategy applicable. Business strategy depends on business types. As well-known best business strategy should be combination of predictable internal and external force and the demands of contentiously changing corporate world for innovative business process. Strategy is the route of directive and opportunity of an business organization over the long time period. Business strategy focused on achieving the advantages for business through its capabilities of resources and utilisation with expertise in tough corporate atmosphere. It’s goal is to maintain the demand of markets and the properly maintain stakeholders expectation According to Mintzberg H Quin (1197, p39) ” strategy is the pattern plan that integrates an organization goal, policies and action sequences as whole” . Strategy is not only planning, visioning and forcsstiog -its also remants of the whole of belief that one can control superior insight and superior will. The modern business strategy is understanding analyticam techniques and influence business through potentionl market place.
In that assignment try to analyse well reputed retail chain TESCO’s strategic process by strategic school of Mintzberg to present where and how can a organization put into action plan to reach and participate into national and international market. In that point of view it also illustrates few strategic theories as like Portes’s five foreces, generic strategis , Prduct life cycle (PLC), SWOT analysis and Pestel analysis of TESCO Plc.
Tesco is a well known and established giant retail chain as a core business of UK. Its has consistaent strategy of growth. Now this Tesco business expansion into global market regularly.
Tesco opened its first store in Edgware, North London in 1929. It gets its name from the combination of the founder of Tesco, Sir Jack Cohen and a partner in a firm of tea suppliers who Cohen worked with, T.E. Stockwell. Since that time, the company has grown and has reflected the changes in retailing. Prior to the Second World War, most grocery stores served customers but self service stores were on their way and, once introduced, allowed stores to grow bigger to become the superstores we know today
The rationale for the strategy is to broaden the scope of the business to enable it to deliver strong sustainable long-term growth by following the customer into large expanding markets at home – such as financial services, non-food and telecoms – and new markets abroad, initially in Central Europe and Asia, andÂ more recentlyÂ in the United States.
The objectives of the strategy are:
To be a successful international retailer
To grow the core UK business
To be as strong in non-food as in food.
To develop retailing services – such as Tesco Personal Finance, Telecoms and Tesco.com
To put community at the heart of what we do.
School of Strategies Preview:
It’s undeniable that strategic development is the key factor for the survival and success off every business. Obviously, each, organization should be have suitable strategies and adapt it to the circumstances that arise in a competitive market. Turner (2003) state that ” in a attempt to guide those whose job it is to put strategy practice , Henry Mintzberg at 1998 described the process of a strategy safari and has identified ten school of thought in respect of strategy development. These schools have huge popularity overtime. The ten different schools were divided into two groups, one is perspective and another is descriptive. The different point of view for perspective schools and descriptive schools ones is that the former on strategy formulation while the latter emphasizing strategy development. The perspectives schools are considered the efficiency and stability foundations which created direction as well as objective for that development of organization. According to Stacey (2007) the three perspectives schools are the design school, the planning school and the positioning school. The school become the foundation and preconditioned source of strategic development for an organizations.
Other side the different descriptive school are the entrepreneurial school, the cognitive school, the learning school the power school, the cultural school and the environmental school provide clear focus of strategic formulations. The group last of is synthesis that consists of the configuration school, “that integrates the views of all the other scholls in terms of configurations or in term of transformations” Stacey (2007).
here, that assessment will be analyse strategic schools these are the planning school, the design school, the cultural school and the positioning school to described and applicable to Tesco to these theory works and how Tesco utilise these models to achieve their target, objectives and successful in competitive global market.
The Planning School
The planning schools are a part of the prescriptive school. These schools usually more concern how the organization strategy should be formulated rather than how they should be compromised. In that school mainly focus on budgeting, scheduling and programming. Each business needs plan for their growth and development. This school of strategy can be applicable in many firms as like Tesco to reach their aim in global market.
Tesco was found in 1924 by Jack Cohen. After many years at that time Tesco becomes one of the biggest retailers in the international market. (http://www.tesco.co.uk ). Tesco does not become successful one day. They build up strong plan which is base on forecasting how the economic carry on, what they want to be and what is the market demand for them. The processes of achievement are the planning school.
As details the planning school look behind the Ansoff model of strategy. These model Tesco used to analyses their market situation and product stability. After successful business in UK they want expansion their business globally in international market, therefore they open Tesco operation in several countries to develop their new product market. As a example Tesco opened stores in Japan where people want to buy fresh food every day, so existing hyper market formats do not meet the demands of local market customer. Tesco that’s why has been invested huge amount of capital on product development to provide the customer needs. Therefore Ansoff marketing strategies, Tesco looking to increase number of customer and number of sales.
Tesco had experienced difficulties with expansion in Poland, Tesco faced with the economic problem and that make their cost higher to market presences. Another example in Taiwan ( 2000 ) , Tesco was facing competition with the French giant Carrefour. These days, there are speculations about Tesco’s withdrawal from Taiwan. From these unsuccessful experience, Tesco realized that expanding into new international market is more difficult, Hence Tesco should be aware about competitive environment. Porter’s analysis is still useful in assessing the competitive environment of firm these days.
4.2 Porter’s Five Force
According to Porter ( 1980 ) this framework can be applied to many organizations. It involves the external environment examining and focusing on the structure of the industry. The aim of this type of analysis is to develop a strategy that will enable firms to build up opportunities and protect them from threats. By doing so, can lead firms competitive positioning. This concept is dividing by 5 force call Porter’s 5 force.
The threat of entry of new competitors ( New Entrance ); In supermarket retailing, barriers to entry are high. High initial investment and fixed costs are likely to prevent many potential newcomers. Another barrier to entry is economic of scale. Tesco and other large supermarket are able to purchase large volumes of good in a lower price. In contrast, smaller new entry companies are more likely to buy smaller volumes at higher prices. New firms also have to be aware that Tesco already have loyalty customers.
The threat of substitutes; Which, Tesco threat of substitutes is high because product that Tesco sell same with to the other retailing shop, which is Tesco should analyse to what extent it is possible for customer to switch tit her substitute. In such cases, Tesco should make sure that customers satisfied on their products or services. On ther other hand companies in the same industry may choose to compete on price, which will reduce profit margins.
The bargaining power of suppliers, In general, most people have a choice between different supermarket chains, who compete on price and various promotions. This can make supplier have high bargaining power. However, Tesco is controlling the situation by not just order one big supplier but by having a number of smaller ones. In contras, the bargaining power of Tesco is increased. If a particular supplier is charging too much, Tesco can switch to another supplier.
The degree of rivalry between existing competitors; As we seen in the market in now a days that all major players in Global market as Carfoure and Wal-Mart trying so hard for increase their market share. Consequently, the grocery market in particularly competitive.
Tesco’s strategy, structure and rivalry are based on the model. It’s strategy is clear, with growth being pursued from areas-the core UK grocery business, non-food, international expansion and retailing services such as financial services, the dotcom business and telecommunication packages. Basically, Tesco is using its strong stable core to keep the business ticking over while it forges new riskier areas growth.
4.3 Porter Diamond Strategy
With this strategy, the objective is to become the lowest-cost producer in the industry. Tesco’s segments in the industry are supplied with the emphasis placed minimizing costs. If the achieved selling price can at least equal ( or near ) the average for the market, then the lowest-cost producer will enjoy the best profits. This strategy is usually associated with large scale business offering ‘ standard ‘ products with relatively little differentiation that are perfectly acceptable to the majority of customers. Occasionally, a low-cost leader will also discount its product maximize sales, particularly if it has a significant cost advantage over the competition and in doing so it can further increase its marker share. ( www.bizcovering.com ). Tesco has launched a new low-cost food line in its supermarkets as it gears up to take on discounters Aldi and Lidl. ( www.retail-week.com ). Tesco have to launch its own versions of their discounters products within its existing stores. This way it hopes it can keep its existing customers happy while hopefully attracting new ones.
As the company faces novel situations and makes small mistakes through trial-adnd-error expanding, management from more realistic perceptions of the foreign market. The need for learning-by-doing at the local spatial level indicates that learning from internationalisation process will often be a gradual, reiterative process. ( Fernie J. 2005 ) Tesco experienced that their opportunity to develop a large scale business in France was unlikely to be realised under the current environment where planning permission is difficult and acquisition valuations are high. Therefore, Catteau was becoming less strategically important. Tesco have learner that advisors can only advise but that’s all. Do not trust any investment bank ( www.prnewswire.co.uk )
Now a days, when new decreasing, especially in EU or UK markets demand is bigger and bigger, overall oil price crunch will deepen and that will pull demand back. Tesco is grocery retailer, so in general food and agriculture industry faces cost increase and even peoples continuing to feed their natural necessity. Maybe Tesco need to invest more to future food supplements. The other challenge for them is about technology as all major technology today is base oil or gas or coal. Tesco like companies will close their door like last winter another UK retailer. Even could be E-commerce focus for Tesco.
4.4 Porter’s Generic Strategies
Tesco’s pricing strategy, though is considered to be among the most effective versus Wal-Mart and holds out hole for U.S food retailers. According to Daniels ( 2007 ) because of very rapid innovation, have extremely short life cycles, a factor that makes it difficult to achieve cost reductions by moving productions from one country to another. Many U.S supermarkets are making efforts to close price gaps with Wal-Mart, convinced that there is a golden price range. The expression refers to pricing that even if Wal-Mart is cheaper, It is sufficiently attractive that other benefits, whether convenience, service or assortment, will compel many consumers to shop the supermarket despite the availability of a super centre. One of the model that Tesco can use to analyses and position itself in purpose to achieve high profitability is Generic strategies framework. Which has been present in Competitive Strategic by Michael Porter, he presents three basic strategic to improving competitive power in environment force to achieve a competitive adge in which a company can achieve the most advantageous; the three basic strategies are cost leadership, differentiation and focusing. According to Porter ( 1985 ) ‘ Each of the generic strategic involves different route to competitive advantage, the cost leadership and differentiation strategies seek competitive advantage in a broad range of industry segment, while focus strategic aim at cost advantage ( cost focus ) or differentiations ( differentiation focus ) in a narrow segment. ‘
The retail industry is highly competitive. The Tesco Group competes with a wide variety of retailers of varying sizes and faces increased competition from other major retailers in the UK and overseas. According to Tesco annual report ( 2008 ) ‘ Failure to compete with competitors of Tesco is and areas including price, product range.
In generic model, Porter suggests that if want to be successful, a company needs to pursue on of the strategies and must not be ‘ stuck in the middle ‘. There are tow areas of competitive advantage, differentiation and low prices which, Tesco does not seem to fall in any single category. They do peruse both differentiations and low-cost strategies at the same time. Tesco does not offer discount shopping and is not even the cheapest among main supermarkets.
Instead, offers Tesco basic foodstuffs as well as Tesco finest. Tesco, being one such company, uses low costs to provide greater differentiations. Another part of Tesco’s strategy that could be seen as differentiating is its building of community. As far as Tesco’s customers are concerned, again, they cannot be ranked as belonging to a certain social group. by providing both cheap and expensive groceries, it offers products for people with limited budgets as well as those who are better off.
Retailers have variety of product, which available on the market continues to oncrease significantly each year. In virtually all sectors, from the food industry to home building products, retailers have to make decision over which products to stock. Retailers must deal with seasonal changes that affect number and types of products they carry. If the company has retail outlets in difference country, its product offering must reflect any difference in style, weather, income and culture.
4.5 Product Life Cycle ( PLC )
The PLC model is useful in explaining production patterns for some types of products, such as standardized consumer goods, but is less useful in predicting future patterns, especially in industries dominated by a few global players. ( Morrison J. 2003 ). The model demonstrates dynamic comparative advantage. The country that has the comparative advantage in the production of the product changes from the innovating ( developed ) country to the developing countries. ( Hill & Charles, 2007 )
Tesco is ever expanding its business in order to keep up the competition to a very high level, so therefore, it is vital that Tesco invest in new services and products so that customer’s demands are met. Tesco is and example of a large supermarket chain use their customer loyalty to diversify and extend their product range. Groceries are always going to be the core product for Tesco but in their website or in their stores, it can be seen to find information on a range of their other products completely unrelated to groceries.
Tesco is developing these new products and selling to their existing customer base to be able to enter these new markets. There is Tesco Finance and Insurance where access to apply for the Tesco credit card and savings account, products that in the past you would have approached the bank for.
Tesco direct is a catalogue shopping service and is seen as taking on established catalogue brands like Argos. By understanding the product life cycle, Tesco is able to identify new areas to move in ( www.accaglobal.com )
Currently Tesco has an electronic range of goods and services that they offer, but one thing they lack is affordable laptops. So far, Dell and PC world are leading retailers of affordable laptops. Tesco needs to buy quality laptops at a competitive price to maximize sales and increase productivity ( www.bizzcovering.com )
According to Daniels ( 2007 ) because if very rapid innovation, have extremely short life cycles, a factor that makes it impossible to achieve cost reduction by moving production form one country to another. As is has been told Tesco is a global retail market and still being globalized around the world. Therefore, Tesco needs to move some products to a new market and an environment. In this case Tesco challenges it rivals by reducing its cost and removing products. There are plenty of difficulties in this competition such as making good research about environment to make perfect prediction about the best products which can be used to beat the competitors in the global market.
Strictly speaking, all strategy schools and models are regarded as a tool for strategic information for an organic perspective and as a process for perceiving a number of different futures for an organisation. Strategy is created at the topmost level of and organisation. This level sets the organisation’s goals and decide’s on its investments and the development of its resources. Thanks to applying strategic models in performance, Tesco has participated more actively in the global market. It has proved the success and development of Tesco in many countries in the world.