STRATEGY AND CHANGE MANGEMENT- CASE OF TESCO

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Word Count -2289

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Executive Summary

The retail business industry environment in the UK is continuously changing and this
has forced companies such as Tesco to quickly come up with strategic plans to adjust
to these changes and remain competitive (Rhodes & Brien, 2014). Brexit has been a
big contributor to the changes in the retail industry and this has made strategic
planning important. These external factors come with threats and opportunities and
companies such as Tesco which is in a competitive industry ought to be able to have
plans to avoid the former and exploit the later. For Tesco, it should aim to invest in
foreign markets since UK market is saturated and also through acquiring local brands
it can grow its market share though targeting the low class individuals. The ansoff
matrix is utilized in guiding the implementation of these strategies that seek to
increase market share.

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Company Overview

Tesco is one of the largest grocery and commercial retail store chain on the globe in
terms of number of chains and annual income (Mollah, 2014). The company is based
in the UK and has operations in various countries. The company started out as a
grocery store and was founded by Jack Cohen. He expanded the company buying out
smaller grocery stores and selling the products at a lower market price than before.
This enabled Tesco to eventually have many stores and it was also able to develop a
good and cheap supply chain. In the 1960’s ventured into supermarkets and
hypermarkets which were selling almost everything (Mollah, 2014). Since then the
company has continued to diversify its products offerings. The retailer has been
successful in their countries after expanding there.

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Table of Contents
Section One ..................................................................................................................................... 5

1.0 current situation ........................................................................................................................ 5

1.1. External Environment Audit ................................................................................................ 5

1.1.1 Pest analysis ........................................................................................................................... 5

Political ........................................................................................................................................... 5

Economic ........................................................................................................................................ 6

Technology ..................................................................................................................................... 7

Legal ............................................................................................................................................... 7

Environmental ................................................................................................................................. 8

1.1.2 Porters five forces .................................................................................................................. 8

Competitive Rivalry ........................................................................................................................ 8

Buyers Power .................................................................................................................................. 8

Threat of substitution ...................................................................................................................... 8

Power of the suppliers ..................................................................................................................... 9

Threat of new entrants .................................................................................................................... 9

Section Two .................................................................................................................................... 9

2.1 Evaluation of the Findings ........................................................................................................ 9

SECTION THREE ........................................................................................................................ 11

3.1. Recommendations .................................................................................................................. 11

3.2 Evaluating the Strategy ........................................................................................................... 14

Section Four .................................................................................................................................. 15

4.1 Change Management .............................................................................................................. 15

Hard Elements ............................................................................................................................... 15

Strategy ......................................................................................................................................... 15

Structure ........................................................................................................................................ 16

Systems ......................................................................................................................................... 16

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Soft Elements ................................................................................................................................ 16

Skills ............................................................................................................................................. 16

Staff ............................................................................................................................................... 16

Style .............................................................................................................................................. 16

Shared Value ................................................................................................................................. 17

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 SECTION ONE

1.0 current situation

The United Kingdom’s retail industry is the biggest private industry in this country
and it is viewed as being one of the most dynamic ones on the globe according to
Rhodes & Brien (2014). The retail industry has a market value of about 440 billion
dollars and this value is projected to grow in the coming years as the consumer
spending power is anticipated to increase (Pantano, 2014). Tesco is the biggest retailer
in the UK in terms of market share with the company posting an enviable 27% control
of the total market share (Shaw, 2015). Further according to Shaw (2015) this
however is a decline in its market share over the past year against the backdrop of
heavy competition from German retailers, Aldi and Lidl who are heavy discounters.
The UK’s retail industry is facing a multitude of issues that are ultimately affecting its
performance. One of the main issues is the increasing scrutiny that the industry faces
due to the need for ethical sourcing and manufacturing, social responsibility and calls
for better employee contracts as well as conditions for working (Indaco-Patters, et al.,
2013). Customer volatility is another issue affecting many of retailers in the UK since
customers are very sensitive to economic downturns, there is lower brand loyalty and
the increasing e-commerce adoption is affecting in-store pricing according to Indaco-
Patters, et al (2013). There are operations reliability issues mostly as a result of Brexit
where there is more uncertainty following the decision to leave the EU and data
follow between the UK and EU has been affected (Dhingra, et al., 2018). Brexit has
been responsible for foreign exchange volatility and interests’ rate risk while also
bring forth the possibility of additional costs which might come through selling in EU
markets. These are some of the issues that Tesco’s management has to deal with as it
attempts to navigate a hyper competitive and volatile market.

1.1 External Environment Audit

1.1.1 Pest analysis

Political
Tesco is at the peril of the adverse effects of anticipated changes in trade blocks due
to Brexit unless there is a significant U-turn on this front. According to Minford
(2016) this means that the World Trade Organization rules will apply in the event that

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no free trade agreement will be reached and this will increase the cost of doing
business for Tesco. This is because products that will be sourced from the EU as well
as other regions could become more expensive. Additionally, expected additional time
as well as cost when it comes to administration and custom clearances might prove to
be an inhibiting factor to want to buy products from the EU hence a consequent
reduction in easy supply chains for Tesco (Minford, 2016). The EU has been keen on
data protection and privacy laws and there are new regulations targeting this area, and
this has to some extent required many retailers such as Tesco to change their e-
commerce approach in an attempt to meet the data security standards. On the other
hand, there are political aspects that have ensured seamless operation by the retailer
such as political stability in the country and the fact that laws and regulations in the
industry are enacted after consultation with the industry players hence there are
minimal chances of enactment of punitive regulations that can adversely affect the
retailer’s daily operations (Hoppe, 2018).
Economic
Consumers are very sensitive to economic and business cycles and price increases can
diminish their purchase intentions. Brexit for instance is expected to lead to a slowed
economy in the short term as the economy tries to adjust to new way of doing
business (Purdue, et al., 2015). This can easily lead to a decrease in the UK consumer
spending due to the general uncertainty among the consumers. The exchange rate
between the euros and the pound is expected to be volatile and lead to the weakening
of the pound and this might be lead to a tough business for Tesco as it will be
subjected to higher importation costs (Busch & Matthes, 2016). Additionally, as a
result of the increased costs, Tesco’s margins might decrease if they opt to absorb the
higher costs or ultimately lead to lower demand of their products in the event that they
decide to pass on the additional costs to the consumers in way of higher prices.
Significant currency fluctuations during the negotiation period can lead to an adverse
effect on the performance of Tesco in the retail industry (Novy, 2015). On the bright
side, interest rates in the UK have remained stable and this has provided a good
business environment for retailers such as Tesco that heavily depend on short term
borrowing to finance purchases. Most of the UK citizens have a high personal
disposable income that is expected to grow in the future against a backdrop of 1.14%
GDP growth in the first half of 2019 and this means there will be a sustained increase
in demand of retail products (Ayres & Voudouris, 2014).

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Social
There is an aging population in the UK and the population growth has been low and
this expected to affect the demand for products in the near future. Additionally, high
literacy rates in the country and trends leaning towards healthy eating are anticipated
to affect the demand of some range of products as the country struggles to deal with
overweight cases with about 50% of adults being obese (McEvoy, et al., 2012). There
a shift among the new age consumers as they are spending less on merchandise and
more on entertainment and the shopping experience and this could in the long run lead
to reduced demand of products (Jabr, 2013). The retail sector relies on many migrant
workers (about 300,00) from the EU and Brexit will have an adverse effect on this
which will ultimately have a bearing on the supply chain and logistics area since it is
heavily reliant on migrant labor (Gumbrell-McCormick & Hyman, 2017). In the event
that Tesco decides to employ UK nationals to fill positions in order to ensure
continued operations, this could lead to increased labor costs. Growth in consumerism
especially among the millennials can be anticipated to grow demand for products.
Sustainability is becoming an important defining factor in purchasing intention among
members of the younger generation and as a result Tesco will need to incorporate
more of this in its operations and supply chain (Bucic, et al., 2012).
Technology
New technologies have brought new marketing channels and mode of consumptions
(Pantano, 2014). Social media for instance has significantly repressed traditional
marketing channels and approaches. E-retail has put pressure on brick and mortar
outlets and some of companies have had to adapt to the new form of retailing
according to Pantano (2014). Technology has also changed retail industry’s supply
chains with better transportation of perishable products, tracking of products and
automated logistics which has helped reduce wastages and reduce CO2 emissions
(Balasescu, 2013). Technology quickly becomes obsolete with introduction of newer
technology and early adopters of new technology usually have a competitive
advantage.
Legal
In the event Brexit happens, Tesco will need to conform to EU standards as well as
the wider trade policies and also regulations. The differences in policies between the
EU and UK could potentially increase compliance costs in addition to product lead
time which them would make Tesco less competitive in the European market (Busch

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& Matthes, 2016). For Tesco’s product prices to remain competitive, the UK
government would need to renegotiate with the EU members and have new
agreements with non-EU countries which could take a while at the detriment of the
company’s smooth operations.
Environmental
There is more focus on corporate social responsibilities and its reporting as people are
becoming more informed on the need to take care of the environment. This might
prove costly for the retailer, however it is important since customer perception is very
important in the current business world (Sughra & Crowther, 2015). Purchase
intentions and customer loyalty are positively influenced by customers having a
positive perception towards the brand.
1.1.2 Porters five forces

Competitive Rivalry
This is high due to a concentrated market as there are many players in this field. There
are four big retailers in the UK that fiercely compete to control the market and apart
from Tesco, the others are Sainsburry, Asda and Morrisons (Audu, et al., 2014). There
are other competitors that control some niche markets such as Waitrose and Marks
and Spenser’s. British buyers switch among the different retailers as they look for the
best prices and this has led to price wars among the retailers. The switching cost is
low and customers alternate between different supermarkets as they look for the
cheapest products (Griffith & Harmgart, 2012).

Buyers Power
The power of the buyers is high since they have a low switching cost and do not
exhibit too much loyalty according to Griffith & Harmgart (2012). This is evidenced
by how much they influence prices, customer service quality and quality of products.
The consumers are usually price sensitive and the customers have the ability to
substitute the retailer they use and buyers’ power over Tesco has been heightened by
retailers that compete on cost leadership such as Lidl and Aldi (Griffith & Harmgart,
2012).

Threat of substitution
This is high since there are many competitors in all the ranges of products that Tesco
sells. E-commerce has made small time players to be more powerful in the market as

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 they can undercut the prices being offered by the big retailers (Wrigley & Lowe,
2014). E-retailers such as Amazon and Alibaba have developed to be ready substitute
for the traditional retailers especially in this moment whereby people want more
convenience when it comes to shopping and shopping experience is a big aspect in
their purchasing process. Lidl and Aldi have been able to grow their market share to
10% by cost leadership and have been operational for two decades only (Griffith &
Harmgart, 2012). There are many competitors that offer similar products to Tesco
which has made the treat of substitution to be high.

Power of the suppliers

Suppliers’ power is relation to Tesco is low since there are many of them and they are
usually small. Tesco controls the terms in which they receive products and they are
also easily able to substitute products due to the plethora of suppliers (Hornibrook, et
al., 2015).

Threat of new entrants

New entrants’ threat is low as the industry requires a high capital outlay. The UK
retail market is also very saturated so it would be hard for a big retailer to enter the
market as all the market segments are controlled by specific retailers that enjoy their
fair share of loyalty (Wood, et al., 2016). These companies also have economies of
scale that can make it hard for new entrants to survive in this industry.

SECTION TWO

2.1 Evaluation of the Findings

Opportunities Threats
  With the possibility of Brexit, the retailer will
Strengthening of its market share, customer
loyalty and brand perception through be paying more to import its products which
application of sustainable processes in its might ultimately lead to reduced margins or
operations especially the supply chain. decrease in demand if they increase the prices
(Pestle-Environmental) of the imported products. (Pest- Economic)

  The
The growth of Aldi and Lidl discounters retailer may experience more
shows that there is an opportunity in the administrative complexities and reduction in

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 lower class and Tesco can concentrate on lead time due to border checks if BREXIT is
this market too through expanding its actualized and this will ultimately affect its
Jack’s subsidiary. Jack’s is a Tesco owned competitiveness. (Pest- political)
discount store and concentrating on growing
 There is threat of lower demand as consumers’
this brand would enable the retailer to be
able to compete with Aldi and Lidl who are numbers decline and their preferences shift to
its low-cost rivals while maintaining its online shopping where there are companies
share of the middle class.(porters model- that have perfected this and will most likely be
threat of new entrants) preferred. (pest- social)

  There is also the threat of competitors with the

Tesco has the opportunity of entering new
markets quite easily through use of e- company facing pressure from all directions.
retailing. The internet has made it easy to The low cost retailers such as Aldi have been
enter new markets and Tesco has the responsible for the decline in the market share
experience of logistics and supply chain of Tesco. Other companies are also preferring
management to be able to enter and thrive to distribute some of their products on websites
in new markets such as Eastern Europe and rather than sell them to retailers to distribute.
Asian markets without excessive capital In the high-end market the company is facing
outlay. (pest- Technology) competition from Waitrose. Customers have a
low switching cost hence they try different
retailers once in a while.(porter’s- competitive
rivalry)

 There is the threat of loss of workers due to

Brexit as some of EU workers will need to go
back to their country. This will adversely affect
their operations and specifically the supply
chains which are controlled by these EU
workers (Pest- Social)

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SECTION THREE

3.1. Recommendations
It is recommend that Tesco continue to target the low class and low middle class
through use of its subsidiary Jack’s and should look to acquire more small retailers
targeting the low middle class and consolidate them under the Jack’s brand and then
look to grow the market share in this market segment by 5 percent in the next four
years. This will enable Tesco to exploit the cost leadership strategy that has proved to
be successful for Lidl and Aldi in the UK market. According to Porter’s generic
strategy, exploiting cost leadership can be a way to gain competitive advantage.

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Figure 1: sources of competitive advantage (E. Dobbs, 2014)

Cost leadership will enable Tesco to increase profits through cost reduction while
simultaneously charging industry average prices. As also noted by E. Dobbs (2014),
this will enable it to increase its market share through charging lower prices while at
the same time realizing a reasonable margin on each sale due to cost reductions.
Companies looking to exploit cost leadership and be successful require access to
capital that is important to incorporate technology that is crucial in bringing down
costs according to E. Dobbs (2014). Additionally, such a company needs to be
efficient in logistics and have a low cost base. These are capabilities that Tesco has
and therefore the application of this strategy would not be too complicated for it.

Another recommendation for the retailer is exploring and consequently exploiting

emerging markets and expand its operations to eastern Europe as well as Asia. This
strategy should aim to ensure that Tesco has operation in at least five new markets in
the next five years. This strategy can be guided by the Ansoff matrix.

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Figure 2: The Ansoff matrix of business strategy

There are four strategies to Ansoff’s matrix and the one that Tesco needs to exploit
here is the market development. This strategy focuses on entering new markets using
the existing products (Hussain, et al., 2013). Through upgrading its online business,
the retailer can easily start operation in other regions since purchase experience
matters to consumers so much currently and therefore having a high quality website
and seamless of products can ensure that the company becomes popular in these
markets. According to Jiang, et al. (2013) convenience is an important aspect of the
current’s world purchase process and through targeting this by having an efficient e-
retail process, Tesco can grow its market share significantly in these new markets.

While exploiting these new opportunities, Tesco needs to be careful about the threats
posed by Brexit. It is recommend that the retailer obtain political as well as regulatory
insight and intelligence in order to create clarity. The retailer also needs to monitor
and influence legislative programmes in order to protect its commercial interests.
Tesco also needs to carry out market analysis and economic scenario modelling so as
to inform its business decisions. Such strategic planning is crucial in periods where
the environment is unstable.

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3.2 Evaluating the Strategy
The strategies and objectives recommend by the report are achievable for Tesco since
it has the resources and an able management to guide it through this growth process.
Expanding into other markets is a good strategy at this point since its local market is
very saturated and the retailer is facing a lot of competition. The only manner in
which it can experience more growth from where it already is, is by aggressively
pursuing growth in new markets in the European region and especially in the eastern
European countries. Apart from this approach, the company should aim to grow by
acquiring some small local brands in the UK market. In assessing the efficiency of its
strategies geared towards increasing the market share, the company can use the
balanced scorecard as the key performance indicator. This will essentially involve
looking at the company’s financial performance, customer value and feedback,
efficiency and quality of the internal processes and the growth in human capital,
culture and technology. The application of this model will enable the company to
gauge how well they are doing in terms of achieving their set objectives and how
efficient are their strategies.

Figure 3: manner in which Tesco can apply the balanced scorecard in actualizing its
strategy

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SECTION FOUR

4.1 Change Management

Change management is a complicated process and requires efficient use of resources
found in the organization and the Mckinsey 7’s model is usually utilized by managers
as a guiding model. The model leans towards a resource based view of the strategic
assets available to organizations and particularly identifies seven elements: Strategy,
Structure, Systems, style, staff, skill and shared values. These are the main factors that
contribute to realization of change in organizations.

Figure 4: McKinsey 7’s Framework

Hard Elements

Strategy
Tesco strategy is to increase its market share through acquiring local brands that sell
low priced products and to also expand into new foreign markets. This will enable the
company to grow its market share among the low class individuals that are very price
sensitive and also increase the market share in European market. The company “every

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little helps” shows its strategy to pursue cost leadership which can be used effectively
in these instances.

Structure
Tesco has an elaborate structure and division of duties which has made process to be
more efficient (Pandey, et al., 2015). The regional managers are answerable to the
CEO of the group and therefore there are well laid communication channels that can
be very helpful in realizing the objectives of expanding into foreign markets and
increasing the market share.

Systems
The hierarchical nature of management has made it hard to communicate within the
organization and is part of reasons why it has issues with suppliers hence inviting a lot
of backlash. The company can work to improve its communication channels for the
benefit of these two strategies as seamless communication will be important.

Soft Elements

Skills
Tesco’s employees are well trained and it should look to undertake training of the
employees of the brands that is acquires in order to ensure high customer service
standards. In the foreign market, it should also look to do so with emphasis being on
training the social media managers. The current employees have the skill level to help
train the new employees that will need to be integrated.

Staff
The company recruits well skilled employees and it does so in masses and it should
aim to ensure this when it comes to finding employees to help achieve their new
objectives.

Style
The leadership approach at Tesco is largely transformational and this has helped the
employees to be more productive. This approach should be sustained in its new
ventures as it will be needed to ensure high productivity needed to grow market share
in new foreign markets.

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Shared Value
The workers at Tesco are usually proud to be associated with the brand and this has
been a source of competitive advantage for the company as customer loyalty that the
retailer experiences is partially as a result of this (Pandey, et al., 2015). Extending the
same culture in its new strategies will ultimately ensure that the retailer succeed in
meeting its objectives.

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