Tesco: Strategic Management

One of the rare multinational entrepreneurs in the retail business, Tesco started its journey in 1919 from London, when the founder Jack Cohen began to sell surplus groceries from a stall. His first day’s sale was ‘4 and profit ‘1. In 1924 he sold his first own brand and that was Tesco Tea, before the company was named Tesco. The company is a combination of Jack’s partner’s name TE Stockwell (TES) and Jack Cohen (CO). In 1932, Tesco became a private limited company. In UK there are four supermarkets. These are Tesco, Sainsbury’s, Asda and Morrisons. They combined together have nearly 600 new stores approved in UK since 2008.

Tesco is an example of outgoing Retail Company expanding during the last ninety years to become a major multinational in retail business worldwide. It employs 472,000 people in 4,811 stores located 14 countries. A true entrepreneur in its operation, Tesco has 1230 stores in Asia employing 94,241 employees generating revenue of ‘8,432 million in addition to its Europe and American operations. The Group sales increased from ‘22.8 billion in 2001 to ‘62.5 billion and operating profit from ‘1.2 billion in 2001 to ‘3.5 billion in 2010. Group sales increased by 6.8%, profit before tax increased by 10.4% and dividend per share increased by 9.1% (Tesco Plc 2010).

David (2009) has explained there are three stages of strategic management: Formulation, Implementation and Evaluation. Strategy formulation includes developing a vision and mission, identifying an organization’s external opportunities and threats, determining internal strengths and weaknesses, establishing long term objectives, generating alternative strategies and choosing particular strategies to pursue. It also includes what new business to enter, what existing business to abandon, how to allocate resources, whether to expand operations or diversify, and how to avoid hostile takeover.

Analyzing Tesco in view of the above strategic model we see that the company has clear short term and long term objectives. It has a plan to grow beyond boundaries and reach to potential markets for business gain. As a retail entrepreneur Tesco has set the benchmarks that would be hard to cross by other competitors. Tesco management believes that the main reasons for their success are their responsible behaviour for the community they serve. In the same context they are playing their roles for a pollution free environment.

The use a balanced scorecard as advised by David (2009) for managing key business elements i.e. customers, operations, peoples, finance and community. The steering wheel they use for this purpose stresses the importance of corporate responsibility as everyone’s job. Tesco’s commitment for the community can be judged from its services that they provide through their retail outlets around the world i.e. caring for the environment, actively supporting local communities buying and selling products responsibly, giving customers healthy choices and creating good jobs and careers. For implementation they have devised a plan. Each community plan has the flexibility to reflect local priorities.

Based on the models described by David (2009) Tesco SWOT analysis is as follows. This SWOT analysis has been developed on the basis of company’s approach, ethics, activities and resources:

Strengths

1. Strong core business in UK. The strength helped Tesco to grow more than the average market growth

2. A good home store marketing food and non food items.

3. Largest online grocery retail store in the world.

4. Real entrepreneur in nature expanding business outside UK, Europe. TESCO have 30% of their stores outside UK. By next year they have planned for up to 45%

5. Dedicated, committed and loyal employees

6. Believes in value addition. Create values and deliver to the customer. TESCO have invested one billion pounds since 1996 to create and deliver values to the customers.

7. Modern management tools like balance scorecards, 360 degree feedback, MBOs and customer management techniques are used foe performance appraisal.

8. Current key performance indicators (KPI) are used to measure future performance of employees.

9. Skilled, educated, capable and motivated workforce

10. Tesco cares for its customers and also for its employees.

11. The core slogans are: Understand customers; be first to meet their needs, acting responsibly for our communities.

12. Team work is emphasized with trust and respect for each other.

13. They inculcate a culture of sharing: sharing knowledge, experience and opinion.

14. Tesco has ninety years of experience in retail business. It is not easy to compete with Tesco based on experience, skills and expertise.

Weaknesses

1. Retail business includes a lot of inventory and logistics. Sometime see such large handlings of items are bothersome and chances of errors are very high.

2. In Japan physical inventory management is done by robots. Tesco despite a multinational retail store for more than ninety years, have not been able to develop such automation.

3. Usually companies adopt vertical integration after such a long time of business operation. Tesco does not have any large volume vertical integration products.

Opportunities

1. Since Tesco is a growing company and believes in expansion, new markets and new territories are always fascinating for Tesco. In view of attractiveness Tesco is opening its retail store with collaboration. Canada is also an opportunity area where a number of stores may be opened in view of the rising immigrants.

2. Tesco has big opportunity for vertical integration. Although it has a number of its own brands but the opportunities are much underutilized.

3. Since it has become a multinational, promotional messages on the carton be done in local language. For example for India it may be Hindi.

Threats

1. There are threats of new competitors as well as existing competitors opening up new stores in the same locality.

2. The entry and exit barrier are high in chain retail business but the attractiveness of profit is also high. Opening up a retail store is good investment and competing in each locality like Tesco is not that easy. But there are retailers like ASDA who may pose threat in certain locality.

3. Asian companies are entering into new businesses. China and Japan have entrepreneurial incentives. Up till now they have not ventured in this segment but once they decide to enter, they are going to pose a major threat to Tesco business.

The above SWOT analysis indicates Tesco’s short term and long term strategy. Tesco is the UK equivalent of Wal-Mart. It is said that one third of all groceries purchased in UK are from Tesco stores. However, it has almost reached the market saturation point where further expansion may not be worthwhile. Therefore, the company is expanding externally around the world. As its expansion strategy, Tesco has recently opened a store in China. The management has informed that the company is investing four times as much expanding abroad as compared to opening stores in UK. Tesco maintains very high ethical standards. Tesco has developed a good ethical system of practice in the company. All employees are supposed to serve with the best interests of the company. All employees must strictly adhere to the ethical policies and practices developed by Tesco. In case of any conflict between the company and the individual interests of the company must always prevail. A new ethical dilemma arisen in the organization is insider trading. This problem or factor was developed by the employees during nineties or earlier. In this kind of a trading, confidential and classified information of the company are passed on to competitors or outsiders. As a result of this unethical practice, many companies in the past has gone bankrupt, because key confidential information was no more confidential. Taking the advantage of confidential many companies was hit hard by their competitors. Employees are strictly prohibited to exploit and misuse their position. They are also prohibited to make any kind of personal transaction with any party dealing with Tesco. To make the corrupt practices fool proof, they have developed Corruption of Foreign Public Officials Act. In a recent example mentioned in some newspaper (NA), Tesco management fired a store manager for handing over a shop lifter to police. The management’s point of view was that customers are their first priority and Tesco treats all its customers with dignity and respect. Shoplifting is too small a matter for the company to disgrace the client and hand her over to police. According to the management this created a bad name for the company. This example explains that ethical standard and integrity of Tesco in dealing with its customers is very high. Because of its size and volume of business Tesco does influence its customers and employees to become socially responsible citizens. It realizes its responsibility and works for overall societal improvement in terms of quality of life and human value. These include its initiatives in fund raising, charity to different institutions and promoting education. The initiates are taken in all countries where Tesco is operating. If Tesco as a major company has been succeeding to convince the local people about its ethics and considerations, no doubt Tesco’s business should improve.