Professional Documents
Culture Documents
STRATEGY
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Business Level
Strategy
Author Name
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Table of Contents
1.0 Situational Analyses.............................................................................................................2
1.1 SWOT Analysis................................................................................................................2
1.2 TOWS Analysis................................................................................................................3
2.0 Strategic Options..................................................................................................................4
3.0 Strategy Evaluation..............................................................................................................5
3.1 Organic Growth................................................................................................................5
3.2 Growth by Acquisition.....................................................................................................6
4.0 Conclusion............................................................................................................................6
References..................................................................................................................................7
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The situational analysis represents the identification and evaluation of all relevant factors
associated with a specific situation (Weihrich and Cannice, 2010). This approach is suitable
when investigating to discover circumstances which are not in favour of a firm. Using
situational analysis with care can improve sales and profitability levels, enhance marketing
efforts, and make it certain to achieve organisational short-term goals and long-term
objectives. SWOT and TOWS analyses are commonly used to conduct situational analysis.
Tesco is operating in the USA, UK, and major countries in Europe and
Asia and therefore become third largest grocery superstore in the world
(Datamonitor, 2012). In the UK, Tesco has secured a market leadership
position in food retail sector with nearly 31% market share
(Euromonitor, 2012).
Tesco has strong financial position showing 63.5bn group revenue with
7.6% average growth from the last year (Tesco Annual Report, 2012).
Tesco aims to retain its customers and also to attract potential customers
using various schemes like club card and loyalty cards. The Tescos
online store, insurance, and non-food items add significant value to its
Weaknesses
strengths
The main weakness of Tesco is the high dependence on UKs market
which is exposed to many macroeconomic problems
Tesco is failed to target city centres and also found reluctant to follow
Opportunitie
s
Threats
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market due to large market share, but it may affect in future due to fierce
rivalry with big superstores such as ASDA, Morrison, and Sainsbury.
In this section, TOWS matrix analysis is used to discover negative factors and find out the
ways to turn them into positive aspects.
Table 1 TOWS matrix of Tesco
OPPORTUNITIES
External
Factors
o
o
o
o
Internal
Factors
STRENGTHS
o
o
o
o
o
o
o
o
o
o
o
WEAKNESSES
o
o
o
o
o
o
o
1.
2.
3.
4.
5.
THREATS
o
o
o
o
o
Fierce rivalry
Financial crisis
Unemployment
Income decline
Political
opposition to
supermarkets
powers
Overseas returns
could fall
ST (Maxi-Mini)
Expand organically
Merger or acquisition
Use differentiation strategy
Complementary services
Growth in non-food
business
WO (Mini-Maxi)
WT (Mini-Mini)
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and also understanding related risks using four growth strategies such as market penetration,
market development, product development, and diversification (Stone, 2011). The
product/market grid is the term also used interchangeably with Ansoff matrix. In this section,
Ansoff matrix is used to develop appropriate strategic options available to Tesco to expand its
market share as well as to increase sales and profit margins. Table 2 shows 8 strategic options
available to Tesco identified in table 1 to prevail over its weaknesses using its internal
strengths and benefiting from external opportunities. Many of these strategies are already
utilised by Tesco; for example, organic expansion, acquiring a competitor, differentiation
strategy, complementary services, and growth in non-food business. Therefore, it would be
easier for the superstore to implement experienced strategies.
Table 2 ANSOFF Matrix
Strategy
Market Penetration
Product
Development
Option
Expand organically
Risk
Low
Medium
Differentiation strategy
Low
Medium
Complementary services
Medium
High
High
Market
Development
Diversification
High
Tesco may penetrate the market in the next five years by adopting an organic growth strategy.
By adopting this option, Tesco can make available more food and non-food items for
customers. In order to implement this strategy, Tesco may expand its storage capacity in two
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ways: (1) by making existing stores bigger to create more space; and (2) by establishing new
stores all over the UK particularly where people most need them, for instance, near town
edges or in villages where no superstores are operating.
The second option to penetrate the market is to adopt merger and acquisition strategy. For
example, Tesco may acquire or merge with LIDL, ALDI, or Iceland stores to enlarge its
existing capacity. However, this strategy requires extensive market research and Tesco may
need to negotiate with stakeholders, banks, other financial institutions to arrange funds.
levels.
Acceptability As this strategy deals with expansion of core business activities, so Tesco will
not face any major risk in adopting and implementing this strategy. In
addition, it is an easy decision of the stakeholders to accept this strategy as
they are aware of the success of business. But initially, some major costs of
Feasibility
expansion activities.
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gearing ratio because it is not difficult for Tesco to arrange capital for
Tesco may plan to acquire or merge with its smaller-scaled competitors (e.g.
LIDL, ALDI, or Iceland) in the next five years. This strategy is suitable for
Tesco as the superstore successfully executed it in the past. But Tesco needs
to perform extensive market research in this regard. The growth by
acquisition strategy using horizontal integration is appropriate at this time
when recession effects are high and small stores are struggling to survive.
Acceptability Acquiring a competitor will open new doors of opportunities for Tesco which
will add a significant portion to the level of superstores profitability. Growth
by acquisition bears medium risk as the expected synergies should not be
hard to deliver because of horizontal integration. Also, stakeholders will
support this strategy due to the existing low level of profitability in few
Feasibility
product lines.
It would be feasible for Tesco to implement an integration strategy in order to
achieve pre-determined goals of acquisition. Tesco is financially sound and
therefore quite capable of acquiring a competitor. Additionally, the superstore
has skilled workforce and employs the latest technology to manage its
resources and day-to-day operations.
4.0 Conclusion
From the above evaluation through SFA criteria, it can be said that both strategic options are
in favour of Tesco in order to retain its leadership position. But compared to the second
option i.e. merger or acquisition, it is more suitable for Tesco to expand organically as it
embraces low risk, fits well with existing strategy, compatible with corporate growth
objectives, and requires less capital. Also, the organic growth strategy is acceptable for
stakeholders and feasible in terms of quick return.
References
Butler, S. (2012). Fresh, but not so easy: Tesco joins a long list of British failure in America.
The Guardian, 9 December 2012.
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