Strategic Business of Tesco System

Question: Discuss about the Strategic Business of Tesco System. Answer: Introduction In today's cut throat competitive environment, it is necessary for any company to diversify its product in more than one business. Creating value through various businesses to achieve a single directed goal is defined as corporate strategy. The corporate strategy is formed in the view of the companies goals, vision and mission. This strategy is very helpful in long term success and profit maximisation of the company (Thompson, 2001). There are many multinational companies and giant players in global markets such as Tesco PLC, Walmart, HUL, PG, Wesfarmers, Woolworths Ltd., LG, Apple or Dell, which have diversified their products and lines. Tesco PLC is a UK based, headquartered in England, which is a multinational grocery and general merchandise retailer company founded in 1919 (Tesco PLC, 2016). In this report, we are exploring strategic business management of Tesco PLC and its strategic business units. The study entails and explores the concept of business level strategy and competitive environment of Tesco PLC. Corporations are the institutions or business units in which group of people are engaged in some productive activities for a pre-defined objective (Furrer, 2010). Tesco PLC is a very big retailing company with 3rd largest retailer in the world by profits and 5th by revenue and besides that it is expanded in almost 18 to 20 countries especially in Europe and Asia. Approximately 60% of the sales and profits of the company is through retailing business (Tesco PLC, 2016). They are the best food retails with the brand name 'Finest' and 'everyday value' and supermarkets in Europe. They have more divisions in online and offline services. In order to communicate its activities related to business every company shares a unique mission, design, logo and massage to give visual effect and identity which is defined as corporate identity (Reading, 2004). It is important for any big company because it enables any company for constant visibility and easy communication to its costumes as well as it renders positive attitude among its competitors all around the world. Tesco is build on a philosophy of 'Every Little Help' and believes in valuing its customers experience in every possible way (Tesco PLC, 2016). Product portfolio embroils all products of the company that includes different categories and product lines (Cravens). In addition to this, Service analysis is the IT services that a company provides to its customers known as service design package. It is sharing the information to the customer through information technology department of the company and that can be outsourced (Marketing Management, 2000). Service and product analysis is a vital part in financial analysis for any investor. Tesco PLC offers wide range of products in groceries, electricals and flowers. Besides that, some of the IT services of the company is financial, insurance and telecoms services. As a multiple businesses Tesco PLC deals in Superstores, Tesco Metro, Express stores, Tesco Extra, One Stop, internet retailing, Tesco Clubcard, Petrol stations (Tesco PLC, 2016). In term of subsidiary Tesco PLC has Bank, Mobil, Tesco Lotus, Tesco Ireland, Dunnhumby, Aeon Every co. Ltd. Bannatyne Music, OCSET LLC, Tesco services etc. Business Units Identification Tesco PLC has various business units such as it deals in food products like all grocery items, meal products and fresh food, non food like electronics, home goods retailing services etc (Tesco PLC, 2016). The company has a strategic business unit strategy which is highest quality products and services with best reasonable prices. It is very focused on long term stability and provides focused delivery services. Strategic Business Units (SBU's) are the part or division of a big company that is a separate autonomous organisational unit (Reading, 2004). These separate entities are big enough to control their management by themselves and small enough to be independently flexible. They have their own objectives and different mission but shares the same value of core business company. SBU's are very responding to market changes as they analyse and adopt market changes accordingly (Reading, 2004). In this case we are highlighting the strategic management of Supermarkets of Tesco. Products that has a close nature or property, satisfies same need of class, can be used together, can be marketed by the same source or can be sold to same range customers is defined as product line (Jolibert, et al., 2012). In case of Tesco PLC Supermarket has several products lines in groceries, Tesco direct comprising technology and games, garden related equipments, home and furnishing, baby and toddler products, health and beauty products, clothing and accessories, toys, home electricals, Cars and entertainment and books (Tesco PLC, 2016). Furthermore, service line is basically the segment of services that has the same nature of benefits or information. The products offered in the services are same with some price changes and according to the need of the customers(Avlonitis Papastathopoulou, 2006). Tesco PLC offers many service lines example Tesco Clubcard, Tesco Bank, Tesco mobile, Recipes and Ideas, Magazine facilities. Tesco PLC Superstore also give services like Tesco living, Tesco opticians and Tesco photo (Tesco PLC, 2016). Business Unit Revenue Centre Revenue centres are the part of responsibility centres of an organisations that manages the resources of the company. These are the stores and centres that are responsible for the direct sale of the products and services of the company to the external buyer. It traces its own costs as well as any other unit that fetches profits (Crosson and Needles, 2007). These are internal service cost allocation centres that are responsible for the reporting motives. Tesco PLC has the largest segment in Supermarkets in UK, Asia and Europe. The gross sale excluding VAT and fuel of the company in 2015/2016 is ?48,352m whereas ?49,853m in 2014/2015, almost 3% of change in the statutory results. After including fuel the total revenue was ?54,433m in 2015/2016 and ?56,925m in 2014/2015, estimate 4.4% change from the last year (Tesco PLC, 2016). Apart from this, UK's and Republic of Ireland's alone revenue including fuel for 2016 was ?5,891m. Operating profit margin before exceptional goods was ?505m changing 1.17% for the year 2016 (Tesco PLC, 2016). External Environment Analysis Operating environment is the external or micro environment of the company in which the company experiences both negative as well as positive impacts (Jin and Lin, 2012). There are various factors that affects the external environment of company and impacts its financial securities and image. PESTEL analysis is a tool to examine and control the external/ macro environmental factors that influence an organisation (Yksel, 2012). PESTEL factor acronyms can be defined as Political, Economical, Social, Technological, Environmental and Legal factor. This analysis examines the factors that impacts companies growth and success but cannot be controlled. This analysis is mainly delivered on industrial level (50MINUTES.COM. 2015). In Tesco PLC supermarkets industrial analysis is of UK market. Political Legal factors includes employment legalisation demand that focused on the welfare and development of the employees in terms of different kinds of labour demand offered by the company such as lower paid higher paid locals, full-time, part-time etc (Leahy, 2012). The company is already fulfilling its employment legalisation demand by not differentiating between full and part-time labours plus it provides job guarantee schemes for the customers and provide many more benefits according to different categories of labours for older people, single parents and first time workers. Additionally, competition commission is preventing the small retailers, suppliers from collapsing by boycotting the big supermarkets. However, Tesco is also already supporting the small vendors and suppliers by giving them employment in its company. After this, the pricing standards of the company is also reasonable as per the standards, in fact they sell products below the cost price (Tesco PLC, 2016). Lastly, according to the European Food Authority standards nutrients description are also been followed by the company such as food with 'low fat', 'light' and 'reduced fat' label. In Economical factor, UK market is very competitive and is currently facing declining due to rising prices in food sector which is affecting the market negatively. At present, all the large retailers and supermarkets are preventing their survival through franchising, mergers, acquisition and self starters. On the other hand, difficult legal requirements by the government as well as land resources in the towns are very limited which is the main problem for retailers and super marketers (Humby, et al., 2007). Thus, main focus of the competitors and markets is on garbing the right place or the most convenient place for people to take the advantage of flexible shopping. Social or cultural factors that are influencing the UK market is mainly changes towards demand for qualitative food like exotic foods and fishes also people are demanding for good taste and focus on value added products and services (Tesco PLC, 2016). Further, demographic related changes are augmenting in the number of working women buyers and older people. Operating cost and supply chain cost is reducing. Along with this, people are tending to be more experimental and aware in case of food habits. People are diverting their taste buds for healthier and organic food. Technological changes are rapid and huge in UK market. Online shopping sites have covered most of the pace because of the easy access. Information technology system has changed the entire method of recording, billing and administrative system of retailing market. Some of the companies are highly advanced in IT system and they are operating their businesses fast, accurately and flexibly (Humby, et al., 2007). Environment factors includes strategies launched by the UK government to dwindle the cutting waste, stop the environmental damage and drop the expenditure of resources and to promote the environmentally friendly manufacturing and consumption (Mason and Evans, 2015). Apart from this, imposing 'fat tax' on fatty foods advertising and highly processed foods by the government is another factor that has affected Tesco but the company has adopted and changed its various products into more health inclined with the help of suppliers. Corporate social responsibility incorporation is also second challenge that has affected many big multinational companies (Tesco PLC, 2016). Tesco has taken the social responsibility seriously and persistently making efforts to improve the environment. Source of Substantial Competitive Advantage Substantial competitive advantage is referred to the uniqueness in the brand through the quality, technical know how or costing of the product that can not be copied or duplicated by any other company, specially competitors. It is high profitability for any company over its competitors because of special skill, process or potent in the products (Hutt and Speh, 2012). Tesco is a very reputed company in UK, Europe and Asia. It has made it image very strong because it delivers good quality of food as well as durable in nature. All the services and products of the company are very reasonable according to their product life cycle and the company offers a wide range of products in a single product line that attracts more customers (Humby, et al., 2007). Furthermore, Tesco PLC is a technological friendly company and always endows innovative and new technology in the market. It is one of the most growing companies in the world due to its operational efficiency and ability to enter in any new market with the most latest technology (Mason and Evans, 2015). It always offers something new and unique products and services to the customers that enhances the shopping experience and keep engaging them with Tesco products. On the other hand, the company also experiments with the store arrangements and innovation in the presentation of the products new formats, concepts and products mix entice customers more easily. Moreover, there are four factors that impact the substantial competitive advantage of any company including first, product innovation that lures the new customers as well as retains the old customer to experience the pleasant and exciting shopping (Janet, et. al., 2015). Second, information technology which enables a company to be competitive in the current dynamic market. Third, managerial capacity that gives internal strength to the company do do everyday business with ease and effectively (Filho, et. al., 2010). Fourth, relationship with the suppliers, suppliers are the main source of quality good and relationship with them ensures the success of the company even in difficult situations. Strategic direction is tracing and customising the requirement aligned with the strategic goals of the company to develop and govern in the any market condition (Davies and Ellison, 2003). Cross checking the portfolio with the strategic goals ensures the right direction of the company which makes company more focused towards its objectives and mission (Harrison and St. John, 2009). As a future recommendation Tesco PLC should do some basic things like retaining its competitive advantage by becoming more market sensitive to the customers need and more creative in loyalty and club programmes (Mason and Evans, 2015). The company should also focus on the management of localising and marketing of the products. It should follow stakeholder-marketing oriented approach to ensure the internationalisation of the products with the same standards. The company needs regain its focus in expanding its chain in US and china market. The company should diversify and keep in acquisition for the global enlargement. Global expansion and marketing growth lead to increase in revenue. If Tesco PLC left behind in global expansion spree, competitors will capture its place soon. The company should also focus in expanding its business in BRICS area that is Brazil, Russia and India. These are global and very wide market witch will give immense opportunities to the company to grow and compete in international level (Mason and Evans, 2015). As well as it should focus on re-entering the US market but with some good strategic approaches and highly technological advanced products. 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