Strategic management Tesco

8 August 2016

The report below provides an insight into the supermarket company Tesco, with emphasis on the company’s internal analysis of resources, competence and competitive advantage, whilst also considering its external environment. Tesco are the chosen company for this report as they are the market leader within the supermarket industry, Tesco controls over 30 percent of the UK grocery market, a figure which is almost double the combined share of nearest rivals Asda and Sainsbury’s. This provides the report with an excellent basis for analysis of competitive advantage.

The statistical evidence for the company’s performance over the last five years can be seen in the table and graphs, within in the appendix. Tesco Chairman Sir Richard Broadbent states that Tesco’s core competencies are that “it has outstanding operational effectiveness; it understands deeply what it means to orientate a business around the customer; it is passionate, and successful, about developing talent from within; and it manages a complex operating environment with great team work. ” (TescoPlc, 2013).

Tesco state that their core values and strategic objectives are meeting customer needs through innovation and change and treating colleagues with a culture of trust and respect (TescoPlc, 2013). When Tesco competes to gain a competitive advantage, it is not just the environment that distinguishes them from their competitors but their internal strategic capabilities (Oxtoby et. al, 2002). For Tesco to gain an advantage over its competitors, it must use its resources and capabilities that enable it to manage a superior performance compared with its competition (Bolivar-Ramos et. al, 2012). It must have distinctive core competencies, which are the skills, and abilities by which resources are deployed through activities and processes that allow it to deliver the value to the customer (Grewal and Slotegraar, 2007). For these recourses to be used in order to gain a competitive advantage, Tesco must have unique strategies, which will allow it to use these resources in a way that its competitors find it difficult to imitate or obtain (Dai et. al, 2011).

The profits earned from resources and capabilities depend not just on their ability to establish competitive advantage, but also on how long that advantage can be sustained (Civelli, 1998). Tesco’s main strategies for achieving their objectives are as follows. The ‘Building a Better Tesco’ plan has been implemented through a comprehensive series of in-store improvements for the benefit of the customer. Adding a wider range of products and services in-store and online, bringing Tesco value and quality to many more categories.

And Tesco is investing in the development of more leaders and a bigger, more diverse talent pool to support the growth of the operations functions. Michael Porters value chain analysis will be used to identify Tesco’s most valuable activities that allows them to achieve their strategic objectives, which enable them to gain a competitive advantage over they’re competition. It must be taken into consideration that although this model has its benefits, the popular version of Porter’s value chain has been criticised by Snyder and Ebeling (1992) among others for not considering the value concept in sufficient depth in order to be useful.

The value network will be used to analyse Tesco’s ability to link the value chains activities more closely, which will allow them to coordinate their actions with customers and suppliers and enable them to deliver their strategic objectives. Michael Porter’s generic strategy will be used, as it will provide further depth of the concept of the value chain and the value network. It will be used as a framework in which by describing how the combination of cost leadership and differentiation, through a coherent delivery of activities from the value chain, can determine how capable Tesco are of achieving a competitive advantage (Wright et. al, 1990). Criticisms of this concept are based on the fundamental that cost leadership and differentiation strategy will be mutually exclusive. In particular, Miller (1992) questions the notion of being “caught in the middle”. One of the primary activities of the value chain model and one of Tesco’s core competencies is marketing and sales. Evidence of this is through Tesco’s use of information technology as a key resource, with over 40 million customer’s worldwide using loyalty card’s such as ‘Clubcard’ (TescoPlc, 2013).

Research by Clemons and Row (1991) suggests that although it is unlikely that any single investment in information technology will lead to competitive advantage, what does make a difference is the competency to innovate with IT over a period of time. This shows how Tesco’s innovation of the ‘Clubcard’ has enabled them to differentiate from their competitors, as they have shown the notion of innovation that is not easily replicated. Specifically, Tesco’ use of information technology has lead to a competitive advantage as it is used to leverage differences in strategic resources. Evidence of this is supported by Rowley (2005), who describes how Tesco’s ability to understand their customers effectively, as a source of both differentiation and cost advantages, provides them with a competitive advantage. Rowley states that unlike other companies, Tesco uses data about its customers to provide services for them. This innovative capability allows making correct decisions about which products to supply and the best way to introduce this in-store as one of their key strategies.

Thus, Tesco have fulfilled its strategy of meeting customer needs with in-store improvements through technology innovation and its use of marketing and sales. This applies to Porters generic strategy of gaining a competitive advantage, as Tesco have gained rare and imperfectly imitable competencies and resources. This discourages consumers from moving to Tesco’s competitors because Tesco have successfully differentiated. It also applies to the bargaining power of buyers, as ‘Clubcard’ remains as Tesco’s most successful customer retention strategy that significantly increases the profitability of Tesco’s business.

In meeting customer needs, customising service, ensuring low prices, wider choices, constant flow of in-store promotions and improvements, enables Tesco to control and retain their customer base. Through the value network, this allows them to successfully form a link with the value chains other activities and build more capable inbound and outbound logistics by understanding they’re customers needs in more depth and develop they’re capability to fulfil those needs. One of the value chains primary activities and one of Tesco’s core competencies is outbound logistics.

Evidence of this is supported by Smith and Sparks (1993), who describes the constant upgrading of Tesco’s systems and processes through innovative IT. Tesco have been substantially re-engineering their outbound logistics with the use of information technology, to facilitate better management of product lifecycles and more efficient delivery of wide ranges of products to customers, with a focus on enhancing core ranges and introducing quality products (TescoPlc, 2013).

This is truly evident in terms of tremendous growth of on-line sales where the company has a strong platform to further develop this revenue stream. After considering the fact that the majority of people have less time for shopping, Tesco employed this online system and have now became the UK’s biggest online supermarket. Inbound logistics is another primary activity of the value chain and one of Tesco core competencies. Tesco use their leading market position and economies of scale as key bargaining powers to achieve low costs from its suppliers, and therefor lowering the costs of their products.

Evidence of this is provided by Lindgreen and Hingley (2003), who describe how Tesco are able to use innovative suppliers as a rare capability because no other company are able to use data based management so extensively. This applies to Porters generic strategy of gaining a competitive advantage by Tesco using they’re resources to achieve cost leadership, and shows their ability to fulfil its strategic objectives of meeting the needs of its customers. Another one of the value chains primary activities is operations and Tesco operational effectiveness is one of their core competencies.

Evidence of how Tesco’s sustain their operational effectiveness is the Extranet systems it has employed (Ward and Daniel, 2012). Evidence of this is also supported by Francis (2004), who describes how Tesco uses the Extranet system to manage a complex operating environment that helps them to organise their operations in order to fulfil their objectives of meeting customer needs, by providing customers with a wider range of products and improving in-store logistics Pfaffenberger, 1997).

This shows evidence of how Tesco fulfil their strategic objectives of developing a successful operating environment for its colleagues. This is coherent with Porters generic strategy framework, as technology is used an effort to maintain Tesco’s ability to handle an increase in product and service volume while controlling costs, thus, it enables Tesco to be differentiated from its market through innovation, whilst being cost effective.

Providing customers with effective inbound and outbound logistics through implementing effective IT operations systems, and gaining a better understanding of customers and suppliers through information technology through marketing and sales, shows how Tesco are able to use the value network by linking primary activities of the value chain. Furthermore, this cannot be done without Tesco implementing one of their key strategies of investing in the development of more leaders and a bigger, more diverse talent pool to support the growth of these operations functions.

Evidence of this is supported by Palmer (2005), who states that Tesco’s HR managers are trained to make data based decisions and forget previously used management methods. Tesco is also organised to capture value from this capability, as it has trained HR managers that know how to use the data and manage people accordingly and who also have the needed IT skills to collect and manage the data about its customers effectively.

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