Tesco Rapidly Changing Environment Business Essay
Todays world is a rapidly changing place. Part of rapidly changing environment that managers face is the globalization of business. Management is no longer constrained by national borders. In order to function and to survive, organization has to interact constantly with the world outside. Developments across a range of factors will have an impact on your business or industry. Business environment is a set of political, economic, social and technological (PEST) forces that are largely outside the control and influence of a business and that can potentially have both a positive and a negative impact on the business. You need to understand how the external environment affects and influences the organization structure. In this situation for achieving high performance manager need to adapt an organization. In this report TESCO’s business environment is describe here. Using SWOT and PESTLE analysis tool TESCO’s business strategy clearly define.
Introduction of TESCO
Tesco was founded by Sir Jack Cohen in 1924. In 1919 Jack Cohen started to selling groceries in London’s markets. The Tea is the first product in which the brand name of Tesco appeared in 1920. So the name Tesco comes from the initials of TE Stockwell who was a partner in the firm of tea suppliers. The first store of Tesco was opened in 1929 in Burnt oak, Edgware. Today TESCO is one of the top three international retailers with 366,000 worldwide staff, more than 2500 stores in twelve countries which sales £41.8 billion. The vision and philosophy of TESCO is that “Every Little Helps is behind everything we do”. The Corporate Social Responsibility policy objective is to earn the trust of customers by acting good services and good relation between customers and suppliers and by building goodwill. They doing this only for earn customers loyalty and it is core purpose of Tesco.
Tesco has four types of store formats for instance, Tesco Metro, Tesco Express, Tesco superstore and Tesco Extra (24 hour) all of them provide different shopping experience but same outstanding value. Tesco sells both food and non-food items. The leading market position improves its brand image and it provides a platform to start private label brands. The items include food, CDs, Books, medicine, tobacco, fruits, vegetables, alcohol, clothes, toys and electrical goods. Tesco has an exciting brand name. It is related with the good quality, honest goods and services that characterize excellent value. A strong brand name and moreover the attractive customer preservation rates are helps the group to introduce more products under its own labels and allocate it to enter new markets. Tesco.com is one of the leading online grocery shopping services in the world and the fourth biggest online retailer in the UK. Amazon, Dell and Argos are placed in the first three positions. Tesco.com serves more than one million regular customers in the UK including households from both urban and rural areas. The group has developed tesco.com-only store, an online service, for the customer in the UK with limited accessibility to physical stores.
Tesco operates three types of operations: The First one is UK operations; it is categorized by five formats which are different from size, location and products. The largest operation of UK is in new cast. In addition to food, it also operates in the non food fragment items including clothing, electrical goods, home entertainment, stationery, kitchen items and furniture’s. The Second operation is outside UK. The other British retailers who tried to expand international business have failed but Tesco has been succeeding to build an international business. It started this operation in 2004. The Third one is Internet operations. In 1994 Tesco also started to operate internet and it is the first retailer in the world who offered home shopping service since 1996. It expanded online ranges as books, wine, movies and electrical goods. From the above information it is clear that although the performance of TESCO has been affected in some areas but it has still value in the market due to reputation and name of TESCO in the market. However TESCO achieved its target in food sector. TESCO ltd has been survived through competition over the last four years in the market but still it is one of the largest retailer companies in the UK.
SWOT ANALYSIS:
SWOT analysis is a tool for auditing an organization and its environment. It is the first stage of planning and helps managers to focus on key issues. SWOT means Strengths, Weaknesses, Opportunities and Threats. Strengths and Weaknesses are internal factors. Opportunities and Threats are external factors.
Strengths
In global market place TESCO have secured commercial standing because of winning “World Retail Awards” in Year 2008. This can be used for marketing campaigns to drive advantage towards the demographic base for future growth and sustainability.
In an environment where global retail sales are showing decline TESCO Group has published sales gain of 13% for UK markets and 26% growth in international markets.
Tesco.com is the world’s biggest online supermarket. Tesco online now operates in over 270 stores around the country, covering 96% of the UK. With over a million households nationwide having used the company’s online services, the company has a strong platform to further develop this revenue stream.
Profits for Tesco’s operations in Europe, Asia and Ireland increased by 78% during the last fiscal year. The company has a strong brand image, and is associated with good quality, trustworthy goods that represent excellent value.
Since acquiring number one ranking in 1996, Tesco has developed a successful multi format strategy that has accelerated its advantage. Its UK sales are now 71% larger than Sainsbury’s.
Weaknesses:
TESCO’s position as a price leader in UK markets can lead to reduced profit margins in order to retain the key price points on must have commercial items.
TESCO Finance profit levels were impacted through credit card arrears, bad debt and household insurance claims.
One of Tesco’s weaknesses has been its failure to dominate the city centre marketplace. Although it has some prominent city centre stores, e.g. the Carlisle store in the North of England, it has failed to make them universal.
Grocer outlets are not set up to operate as specialist retailers in specific areas of product which can be capitalized on by other smaller bespoke retailers.
Opportunities:
Statistics suggest TESCO is the third largest global grocer which indicates a level of buying power to ensure mainstream economies of scale.
The acquisition of whoever provides the opportunity to develop the brand through Asia, specifically South Korea and further grow International markets for the group.
The development of Tesco Direct through online and catalogue shopping will grow the use of technology. Providing non food based products with moderate to high margin returns and less focus on sales and margin per foot return to space.
TESCO mobile have grown 0.25 million customers in 2008 and moved into profitable status suggesting further growth and development within this technological area can be developed.
Threats:
Food and non food items’ raw material cost is rising, will impact profit margins overall.
In far East locations exporting restrictions on some non food product areas will reduce margin rates on products with already low margins.
American and UK markets have been affected by economic concerns through the “credit crunch”. Lower available income will impact and strategic focus may need to change to lower priced basic products with less focus on higher priced brands suggesting a switch in price architecture.
For TESCO, there is a persistent threat of takeover from the market leader Wal-Mart who has both means and motive to pursue such action.
PESTLE analysis:
In analyzing the macro-environment, it is important to identify the factors that might in turn affect a number of vital variables that are likely to influence the organization’s supply and demand levels and its costs (Kotter and Schlesinger, 1991; Johnson and Scholes, 1993). Because of ongoing changes that impact the whole organization. PESTLE analysis categorizes environmental influences as Political, Economic, Social, Technological, Environmental and Legal forces. The analysis examines the impact of each of these factors (and their interplay with each other) on the business. Using these results take advantage of opportunities and to make contingency plans for threats when preparing Business and Strategic plans.
Political Factors:
Tesco now operates in six countries in Europe in addition to the UK. Tesco’s performance is highly influenced by the political and legislative conditions of these countries, including the European Union (EU).
For employment legislations, the government encourages retailers to provide a mix of job opportunities from flexible, lower-paid and locally-based jobs to highly-skilled, higher-paid and centrally-located jobs (Balchin, 1994). Also to meet the demand from population categories such as students, working parents and senior citizens. Tesco understands that retailing has a great impact on jobs and people factors, being an inherently local and labour-intensive sector. Tesco employs large numbers of student, disabled and elderly workers, often paying them lower rates. In an industry with a typically high staff turnover, these workers offer a higher level of loyalty and therefore represent desirable employees.
Economical Factors:
Economic factors are of concern to Tesco, because they are likely to influence demand, costs, prices and profits. One of the most influential factors on the economy is high unemployment levels, which decreases the effective demand for many goods, adversely affecting the demand required to produce such goods.
These economic factors are largely outside the control of the company, but their effects on performance and the marketing mix can be profound. Although international business is still growing and is expected to contribute greater amounts to Tesco’s profits over the next few years, the company is still highly dependent on the UK market. Hence, Tesco would be badly affected by any slowdown in the UK food market and are exposed to market concentration risks.
Social Factors:
Current trends indicate that British customers have moved towards ‘one-stop’ and ‘bulk’ shopping, which is due to a variety of social changes. Tesco have, therefore, increased the amount of non-food items available for sale.
UK retailers are also focusing on added-value products and services. In addition, the focus is now towards; the supply chain, the own-label share of the business mix and other operational improvements, which can drive costs out of the business. National retailers are increasingly reticent to take on new suppliers (Clarke, Bennison and Guy,1994; Datamonitor Report, 2003).
The type of goods and services demanded by consumers is a function of their social conditioning. Consumers are becoming more and more aware of health issues, and their attitudes towards food are constantly changing. One example of Tesco adapting its product mix is to accommodate an increased demand for organic products. The company was also the first to allow customers to pay in cheques and cash at the checkout.
Technological Factors:
Technology is a major macro-environmental variable which has influenced the development of many of the Tesco products. The new technologies benefit both customers and the company: customer satisfaction rises because goods are readily available, services can become more personalized and shopping more convenient. Tesco stores utilize the following technologies:
Wireless devices
Intelligent scale
Electronic shelf labeling
Self check-out machine
Radio Frequency Identification (RFID).
The adoption of Electronic Point of Sale (EPoS), Electronic Funds Transfer Systems (EFTPoS) and electronic scanners have greatly improved the efficiency of distribution and stocking activities, with needs being communicated almost in real time to the supplier (Finch, 2004).
Environmental Factors:
In 2003, there has been increased pressure on many companies and managers to acknowledge their responsibility to society, and act in a way which benefits society overall (Lindgreen and Hingley, 2003). The major societal issue threatening food retailers has been environmental issues, a key area for companies to act in a socially responsible way. Hence, by recognizing this trend within the broad ethical stance. Tesco’s corporate social responsibility is concerned with the ways in which an organization exceeds the minimum obligations to stakeholders specified through regulation and corporate governance. (Johnson and Scholes, 2003)
Graiser and Scott (2004) state that in 2003 the government has intended to launch a new strategy for sustainable consumption and production to cut waste, reduce consumption of resources and minimize environmental damage. The latest legislation created a new tax on advertising highly processed and fatty foods. The so-called ‘fat tax’ directly affected the Tesco product ranges that have subsequently been adapted, affecting relationships with both suppliers and customers.
Legal Factors:
Various government policies and legislations have a direct impact on the performance of Tesco. For instance, the Food Retailing Commission (FRC) suggested an enforceable Code of Practice should be set up banning many of the current practices, such as demanding payments from suppliers and changing agreed prices retrospectively or without notice (Mintel Report, 2004). The presence of powerful competitors with established brands creates a threat of intense price wars and strong requirements for product differentiation. The government’s policies for monopoly controls and reduction of buyers’ power can limit entry to this sector with such controls as license requirements and limits on access to raw materials (Mintel Report, 2004; Myers, 2004). In order to implement politically correct pricing policies, Tesco offers consumers a price reduction on fuel purchases based on the amount spent on groceries at its stores. While prices are lowered on promoted goods, prices elsewhere in the store are raised to compensate.
Organizational Business Strategy:
To produce great business performance it is necessary to turn strategies and plan into individual actions but it is not easy. Many companies repeatedly fail to truly motivate their people to work with enthusiasm, all together towards the corporate aim. Most companies and organizations know their businesses and strategies required for success. However many corporations especially large ones struggle to translate the theory into action plans that will enable the strategy to be successfully implemented and sustained.
Formalization: Formalization is the extent to which rules and procedures are followed in an organization. This element varies across organizations. For example in some organization arrival and departure times to and from work are specified. In other organizations employees will spend sufficient time on the job to get the work done. In some organizations many rules are codified in huge manuals but no one pays attention to them. In others little is written down but rules are informally understood and followed. The most useful definition of formalization is that it represents the use of rules in an organization. The degree to which rules are followed not the degree to which they are codified. In Tesco shift type working system is there. Time punctuation is most important in Tesco. Each and every staff wears particular uniform.
Specialization: Work specializations to describe the degree to which activities in the organization are subdivided into separate jobs. The essence of work specialization is that rather than an entire job being done by one individual it is broken down into a number of steps with each step being completed by a separate individual. In essence individuals specialize in doing part of an activity rather to the entire activity. In Tesco according to different positions different roles are there like general manager, purchasing manager, technical manager, finance manager, HR manager, customer service assistance etc.
Hierarchy:
In a hierarchical organization employees are ranked at various levels within the organization, each level is one above the other. At each stage in the chain, one person has a number of workers directly under them, within their span of control. The chain of command is a typical pyramid shape. A tall hierarchical organisation has many levels and a flat hierarchical organisation will only have a few. Tesco has a flat hierarchical structure with just six levels between checkout staff and chief executive. Each store manager is responsible for their store.
External Environment:
In retail Tesco is top of supermarket in UK. There are many competitors like Asda, Sainsbury. In current market position Tesco’s share is more than other retail company. Every year growth of Tesco is increase. In market position Tesco is stable.
Culture:
Tesco is now in international market. In Tesco many different culture people are working together not any obligation for culture and people’s value is same. In Tesco clear norms and value are there.
Professionalism:
Training is most important for every company. In some companies training is given by professional way while in small companies training is formal. Tesco gives high professional training.
Goals and Strategy:
Top management is to determine an organization’s goals, strategy and design. Organization’s mission is the official goal whereas in organization actually pursues, specific outcomes like resources, overall performance, market, employ development, innovation, productivity are operative goals. Strategy means plan for achieving organizational goals in competitive environment. Goals define where the organization wants to go, strategy how it will get there. Tesco’s main goal is to create value for customer to earn their lifetime loyalty. For achieving this goal Tesco do something new for customer. Tesco will remove plastic and paper bags.
Size:
Size of company is determined by number of stores it has and number of employees it has. It is also determined by revenue of company. It had revenue of 47.3 billion pounds for the year 2008. This made Tesco the fourth largest retailer of the world. Tesco is operating as 2318 stores and more than 326000 employees.