Strategic Management And Leadership Of Tesco Essay

Ques: A critical review of the strategic options available to the organisation in the future?

Table of Contents

Introduction.
External environmental Analysis of Tesco
Critical Review of Culture and Leadership of Tesco
Organisational Culture of Tesco
Organisational Structure of TESCO
Organisational Culture
The Management and Leadership at Tesco
Strategic options available for the organization
Conclusion
References

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Introduction

Tesco is one of the largest supermarkets in UK. It dominates the retail industry in UK. The main reason behind the success of the organization is its strategy of operations and the team of management. On measurement of the profitability of the organization, Tesco is one of the leading multi retail organizations in UK. It has stores in more than 12 countries of the world. The stores are in Europe, America and Asia. Over the years it has maintained its position as the leading brand in UK. The market share of Tesco in UK is 30%. One of the major stock exchanges of the country has the listing of Tesco. It is listed in the London Stock exchange and it is also a constituent of the FTSE 100 index. The market capitalization of the firm is ?20.5 billion.

The main purpose of the organization is to reflect the change that has occurred across business organizations. The main focus of the organization has shifted from the profit making motive to maximization of the wealth of the investors. This has added value to the organization. They have left behind them a legacy that is followed by other retails brands in UK. The business strategy of the organization is planned in such a manner so that it is reflected in the way the business organizations behave. Tesco has always worked in such a manner so that it can gain the trust of the customers and loyalty of the stakeholders of the organization (Tesco plc, 2014) ; (Tesco PLC, 2004).

External environmental Analysis of Tesco

The external environmental factors affecting Tesco can be analyzed by using PESTEL framework.

Political Factors

Tesco operates in a globalised environment. It operates in six major countries. Apart from UK, the business operation of Tesco is in Ireland, Czech Republic, Poland and Turkey. It also operates in Thailand, South Korea. The political and legal factors have influenced the growth of the multi retail brand. The legal policies of the European Union have also played an important role in the growth of the retail brand.

Tesco provides job opportunities to numerous. The government provides job opportunities to low paid workers, age old workers and highly skilled employees. Tesco understands the value of the employees for the organization. They want to increase the employment in the country. They understand that retail sectorcan provide job opportunities to numerous. Since the retail sector is a labor intensive sector, Tesco employs large number of students, elder workers and students. The workers are loyal to the organization and play an important role for the success of the organization. The Government has played an important role in providing encouragement to the retailers for employing huge number of employees.

Economic Factors

The economic factors play an important role for the growth of an organization. The company will be affected by the macro economic conditions of the country in which it is operating. The demand for the products, cost and profit margin of the organization will largely depend on the purchasing power of the customers. The purchasing powers of the customers are affected by the macro economic factors like inflation, GDP. Any downturn in the economy like recession or the Global financial crisis (that occurred in 2008) will affect the business of the organization. Since Tesco is a retail multi brand organization, the success of the organization will depend largely on the consumer behavior and the purchasing power of the consumers. Tesco is highly dependent on the UK market. Tesco is highly exposed to market concentration risk.

Social factors

The trend in the retail market is changing. Tesco has also innovated itself with the changing trends in the market. There are various societal changes that have occurred in UK. Tesco has innovated its business strategy. They have included certain non food items in their store. Customers prefer buying from a single store. The inclusion of the non food items has increased the sale of the organization. There is increased number of female workers working in organization. Thus women cannot devote time in looking after the household. Thus they prefer ready food products that has added value to it. Since consumers are becoming more health conscious, they are preferring food items in the store that meet their calorific needs. Thus there is increased demand for organic products. The store has included organic products in their stores (The Economist, 2013).

Technological factors

Tesco has been using advanced technology for the development of the products. Thus Tesco has always innovated itself that has benefitted both the customers and the organization. They have included certain new products in the store that has been prepared by using advanced technology. The retail sector is a customer driven industry. The customers prefer food items that are readily available and they customize their services and make the shopping more convenient. They have managed the supply chain more efficiently using the ECR (Efficient customer responsibility). The advanced technologies used by the organization includes

  • Tesco uses devices that are wireless.
  • They use electronic shelf labeling.
  • They have also installed a self check out machine

They have also introduced ETFs and electronic scanners. This has increased the efficiency of the organization and made the distribution channel more connected.

Environmental Factors

The environmental factors has been threatening the growth of the organization. The companies in UK are forced to work in a socially responsible manner. This has increased the pressure on the organization. The organizations have to consider the ethical issues before making any investment decision. The organization has to take an ethical stance. Tesco has been socially responsible organization. The organization makes huge investment in corporate social responsibility. They have to meet the minimum expectations of the stakeholders. They have to abide to the rules and regulations lay down through corporate governance.

Legal factors

The policies of the Government and the rules and regulations play an important role in the performance of Tesco. Many of the current practices by the retail industries have been banned by the Food retailing commission. The rules lay down by the authority control the demand of the retailers on the suppliers, change in the agreed prices without giving prior notice. The organization has to develop politically correct strategies of pricing. The consumers are provided a reduction of price on the purchase of fuel based on the consumers spent in the grocery stores (Metzger, 2014; p-2-23) ; (Blakey, 2011).

Porter Five Forces analyses the retail industry in UK with respect to Tesco.

1 Threat of new entrants

Tesco has various competitors in the retail industry. The major competitors of Tesco are Sainsbury, Asda and Safeway. The market share of the retail brands is 70%. There are other small retail chains operating in the current industry. There has been a transformation of the grocery market since 2005 to a business that is dominated by the supermarkets. The retail chains have developed a dominant position in the market by gaining operational efficiency and strategically planning the marketing mix of the organization. This has posed a negative impact on the small traditional shops. The retail industry chain in UK has made a strong presence which has threatened the entry of new companies in the retail industry in UK. The new entrants find difficulty in establishing a market in Tesco as they have to make huge expenditure on the fixed costs and management of the supply chain is a costly affair. Tesco invests huge amount of money in using advanced technology and using stock control systems. This has threatened the entry of new companies in the same sector. Tesco has always been innovative in their approach and mainly focused on promotional activity and increasing the distribution network of the organization.

2 Bargaining Power of the suppliers

Tesco has gained leading position in the market with the cooperation it has received from the suppliers. The suppliers work in an efficient manner with the stores like Tesco and Asda so that they do not lose their business with the organizations. The small retail chains are unable to gain this advantage from the suppliers. The large retailers are exposed to a wide range of supplier market. They can get products at a cheaper rate from abroad. Thus the suppliers work with the retailers and maintain a strong business relationship with the retailers so that they do not lose their business with the retailers. The rivalries between the organizations have reduced the profit margin of Tesco.

3 Bargaining power of the Consumers

Tesco has been able to retain its position in the market by inventing new strategies. They have introduced the Club card. It is a famous loyalty card offered by Tesco. It remains one of the most successful strategies of customer retention devised by Tesco. They have always used innovative strategy to meet the need of the customers. They offer better food products to the customers at lower prices. They also emphasize on meeting the calorific need of the customers. There is growing demand from the customers to purchase products from a single store. Thus Tesco has included non food items in their retail store to meet the demand of the customers. The consumers have become health conscious. Thus they have included various organic products in their stores. This has attracted more consumers towards the retail store.

4 Threat of new substitutes

The retail industry has to match up to the new trends of the market. Substitutes pose threat to the existing product. The substitutes have threatened the existence of the old products. The new trends have further weakened the existing business of the Tesco. Tesco is constantly innovating itself to maintain its;position in the market. There are various small chains that have emerged that offer products at reduced prices. Thus Tesco has to reduce the price of their products in order to attract more customers. This will reduce the threat from the substitutes. Tesco have opened small scale operation stores and Metro andExpress stores in various towns and cities for the maintaining the competitive edge.

5 Bargaining power of the competitors

There has been tremendous growth of the retail industry in UK. The large retail giants like Tesco, Sainsbury have gained market dominance. There has been increased retailer concentration in the sector. However there is relatively small number of buyers. Thus there is small scope of growth in the market. There is wide range of choices available for the retailers. The retails stores are innovating themselves to meet the demand of the consumers. This has posed sever threat on Tesco. Tesco has to constantly reinvent itself. In order to foster in the competitive market, Tesco has to implement new strategies for development of its business. Otherwise, it will lose its market share. The grocery retailers have to bring innovative strategies to survive in the competitive market. Tesco has reinventing itself. It has gained dominant position in the market by addressing to the changing need of the consumers. Tesco focuses on maintaining the price of the product according to the preference of the customers. They want to maximize the value of their brand by addressing the need of the consumers (A MODELFOR INDUSTRY ANALYSIS, 2014). They have also focused on value added elements (Nyandat, 2013) ; (Porter, 2014 ; p-2-10).

Critical Review of Culture and Leadership of Tesco:

Organizational culture can be referred as the behavior of the people within an organization and how those behaviors attach meaning to the organization. Culture can include the habits, beliefs, assumptions, language, norms, systems, values, and the visions. In every organization a specific pattern of collective behaviour is seen and it is the part of the organisational culture. An organisational culture can affect the interaction within the people of the organizationlike stakeholders or the clients. So it can be said that the culture is the surrounding environment at workplace. Organizational culture is one of the strongest factors that can shape the work processes, work relationships, and the work satisfaction. It is known that the culture is unseen but the culture can significantly affect the activities in an organization. A group of people can work together by following unspoken, written and unwritten rules and it affects the organizational culture (A, 2013). There are various factors that can affect the organizational culture. The values, education, upbringing, strengths, weaknesses, life experiences can define the organizational culture and the leadership. Organizational culture can significantly affect whether a company can reach their goals and objectives.

Organizational Culture of Tesco:

Tesco PLC is one of the leading multinational grocery and general merchandise retailer headquartered in Cheshunt, Hertfordshire, England, UK. In terms of the profits, it ranks number 1 among all the retailers in the world. It is the second largest retailer in the world in terms of the revenues. The company has stores across 12 countries and it is the market leaders in the UK with the market share of 30%.

The company employs 600,000 people all over the world and thus it is very important to maintain a better organisational culture. The structure of the organizationis simple and they effectively utilise the labour force for the growth and development of the organizationand for achieving their goals and objectives. The organizationhas always followed the implementation of innovation and technological improvement in the provision of the service and it has effectively improved the efficiency of the employees. The innovation has also allowed the reduction of human error and thus more responsibility can be given to the general staff for the provision of better service to the customers (Elsmore, 2001).

In each store the managers are given a greater span of control with the workforce and the managers work effectively to manage the operations as well as maintaining a positive organisational culture with effective communication and cooperation. There is an effective relationship within the employees and the manager and proper training has been given to the employees for executing the services. A centralised decision making is followed in Tesco as all the decisions in the company are made by the board of directors.

Organisational Structure of TESCO:

An organisational structure basically depends on the type of sector that is operates on and the number of employees within the organizationalong with the physical resource that is used in the process. There are basically two types of organisational structures that are followed by Tesco. Both the organisational structures serves different purposes for Tesco but the both the structures are less complex, transparent and clean. One of the organisational structures is for the company as a whole. In that organisational structure, the board of directors are at the top level management. On the other hand another organisational structure is followed in the stores all over the world. In the traditional structure the board of directors are at the top level and the subordinates and the mangers are in the next hierarchical order (Boynton, 2007). There is a clear description of the responsibilities and the roles of each and every individual in the organisational structure and thus the structure is clearly defined and less complex. The employees have a clear idea in each and every store regarding their duties and to whom they need to report in certain situations and who is in charge of several operations.

The human resource department of the company is also effective in managing the human resource of the company. It is known that the human resource is one of the critical success factors of an organizationand thus it is very important to manage the resources efficiently. The HR department also updates on the requirement of new employees. The employee appraisal, rewards and remunerations, the training and development of the employees are also performed effectively within the organisation. They have implemented techniques for the labour turnover reduction and for planning in advance for increasing the efficiency in the department. It is evident that flexibility is very important and thus it is implemented within the HR department for the employees and they are given appropriate training for increasing the efficiency (Boothby, 2007). The work ethics are maintained in the organization and measures are also taken to provide a healthy and safe environment for the employees. But there are certain problems that are faced by the company in HR department like the lack of required skills and abilities among the newly hired employees, attracting new employees in the industry and the increasing turnover rate as the company fails to retain its employees (Bell, 2013).

Organisational Culture:

The company was founded by Sir Jack Cohen and he had the vision to provide all variants of products to the customers in a single location at an affordable price. His vision was to “Pile it high and sell it cheap”. Thus it can be said that Tesco had the culture of selling the products at a cheaper rate to the customers (Elsmore, 2001). The culture is still followed in the company but there has been an addition in terms of providing high quality product to the consumers. Tesco has also broadened the range of products that are offered to the customers. At first the company was opened as a grocery store but now they also offer CDs, DVDs, electronic goods, clothes to the consumers. Thus the organizational culture of Tesco has changed to “one stop shop” (Barnes, 2011).

It is known that, at present Tesco is one of the leading retailers in the world and there are many stores that has been opened in different countries. Thus in this context it can be said that the company need to implement appropriate measures for managing and maintaining an effective and efficient organizational culture as there can be several issues that may be faced by the company in a cross-cultural environment (Kummerow and Kirby, 2013). It is known that Tesco has diversified group of people working in the organizationacross the globe. Thus the interaction, the cooperation and the communication within the employees and between the managers and the employees are necessary for an effective and efficient organizational culture. Flexibility is one of the major factors that are followed across the organization so that the company can sustain their position in a continuously changing and the dynamic environment. The leadership is also one of the critical success factors for the company and it can be discussed here.

The Management and Leadership at Tesco:

The leadership can be described as the process of social influence where a person can help in order to achieve certain goals or in accomplishing certain task. A leader can be described as a person who is basically followed by others. A leader can organize a group of people and can help them in achieving the common goal. In case of an organization the managers can play the role of leaders and they can help the employees in achieving various goals and objectives or for accomplishing the common task (Ahn, Adamson and Dornbusch, 2004).

It is known that Tesco is the largest chain store in the UK. The mission of the company is to ensure that the customer loyalty is built in the long-run by creating value for the customers. The main objective of Tesco is to operate effectively and efficiently and achieve sustainable growth in the market (Raelin, 2011).

One of the reasons for the success of the organization can be stated as the leadership practice in the company. The company maintains a clear organizational structure where the roles and responsibility of each and everyone is clearly defined. The chief executive officer of the company Mr. Tery Leahy has worked effectively for the success of the Company. Mr. Leahy has been identified as a visionary leader and he has also led the company towards strategic organizational change (Arvinen-Muondo and Perkins, 2013). The main focus of the change is on the needs and requirements of the consumers. He has been proved an excellent leader in terms of motivating the employees and he has also identified the importance of the link between the employees and the customers. His philosophy is based on the fact that the productivity of the employees can be increased if they are treated and motivated properly. It is identified that the employees should be given a task that they are interested in. This can increase the job satisfaction and the involvement of the employees. Participatory leadership is followed in the organization (Raelin, 2011).

One of the visions of the company is to open several business opportunities in the UK and across Europe. There are basically five functional departments in the company and they are marketing, human resource, finance, administration, and research and development. Each department is managed by the managers in that department and effective communication and coordination is maintained in each department and it increases the efficiency. In Tesco the concept of management by objective is followed (Tesco boosts investment in leadership development, 2010). That means the managers act as leaders and they lead the employees in achieving the predefined goals and objectives. Specific duties and responsibilities are thus given to the managers in each department and they work effectively to fulfill their responsibilities.

Thus it can be said that the organizational culture and the leadership that is followed in the organization can affect the strategic decision making in the organization. It is known that the company is operating in a market where flexibility is very important. The environment of the market is dynamic and it is continuously changing. Thus the company need to implement various strategies for achieving the sustainable growth in the market and to expand more in the global framework. In that context it can be said that the leaders can play significant role in successful implementation of the strategic decision making. The leaders also need to ensure that the organizational culture is maintained effectively for the success of the company.

Strategic options available for the organization

Tesco is a giant multi brand retailer in UK. In order to obtain competitive advantage, the company has three major strategic options available in front of him. They are –

Cost leadership

In order to maintain its position as the market leader, Tesco can price its products in such a manner so that it can achieve cost leadership. They must offer wide range of products at lowest costs. This will reduce the pressure from the competitions and they will arrive as the market leader. They must control the money spend in business operations. They must price the products in a competitive manner. This will reduce the burden on the organization. They must sell products and services that are unique from the others. This will increase the market share of the organization (Seaton and Waterson, 2014).

Strategy of Differentiation

Tesco must constantly innovate itself in order to meet the changing need of the customers. The customers prefer t purchase all the items from a single store, thus they must include more products in the store that are non food items. This will increase the customer strength of the organization. The organization must implement its strategies in such a manner so that it can meet the demands of the consumers. They must strategize itself in an organized way. They have to invest money in introducing innovative tools for the success of the organization. They must create brand value with the wide range of offering of the products. They will be able to gain competitive advantage by introducing new products. They must understand the consumer demands. The consumers are demanding products that have high content of nutrient and meet the health requirement of the consumers. Thus Tesco must introduce more organic products in the stores. Their service must stand out from the other retail competitors.

The last strategy that the organization can implement is the either the differentiation strategy or the cost leadership strategy. They must also focus on increasing the efficiency of the internal employees. They must serve their customers in such a way that they become permanent customers of the stores. They must maintain good relationships with the Government and regulatory authorities. They must also address to the need of the suppliers. They must address the broad market as well as confine their market in such a manner so that they meet the demand of the smaller market segments. They have to make their strategic decisions in such a manner so that they address the needs of the various segments of the market. They can focus of a particular market to gain competitive advantage. They must have a clear business strategy to maintain its position in the market.

They can also explore the Asian market. They can open new stores in China, Japan and India. They can use advanced technology for the development of the product. Strategies can also be used for product diversification (STRATEGIC MANAGEMENT SESSIONS & SEMINARS, 2012) ; (Lloyd, 2008).

Conclusion

The strategic decision making of the organization depends on the culture and leadership of the organization. The company has to be flexible and reinvent itself in order to gain the market share. The company has to meet the changing need of the consumers. The strategies of the organization must be devised in such a manner so that it can achieve sustainable growth. This will ensure long term success of the organization. The company must expand its stores and strengthen it in the Asian market. Tesco must ensure that it maintain its position as the market leader. Organizational culture plays a crucial role in the success of the organization

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