Research Articles Base: Porterâ€™s Generic Strategies Model

Porter’s Five Forces Model on BBA GROUP – a textile company

Introduction Every business is subject to factors that affect the firm’s function as a whole.  These factors are the ones attributed for the success or even the failure of a business (Oliver 1997).  In the light of this, there are certain ways or techniques to be considered in order to emerge and continue to be competitive within the market place. The marketing concept has been defined as ‘the key to achieving organizational goals’ and the marketing concept rests on ‘market focus, customer orientation, coordinated marketing and profitability’. In a profit making business, the firm obviously has to try and achieve this level of customer satisfaction as a way of staying ahead of the competition and making a profit (Moschis 1994). Today, more and more people and organization are striving to be recognized in the business arena.  With this objective, these organizations had been able to competently and effectively adapt to the situation in the market place by using generic strategies that enhanced their competitiveness.  There are five different generic strategies that a business can choose.  These include cost leadership, differentiation, focused cost leadership and integrated cost leadership/differentiation.  Each generic strategy helps the company to establish and exploit a competitive advantage within a particular competitive scope (Hitt, Ireland & Hoskisson  2003). Thus, this paper will critically examine the generic strategy used by BBA Group. Further this paper will provide an analysis of the company using some marketing tools like PEST and Porter’s Five Forces Model to determine the situation of the company in the internal and external marketing environment. In addition, this paper will also give emphasis on the competitiveness of the company.  Herein, the discussion will include the determination of the strategies used by the company. Overview of the Company             BBA Group has been established in 1897 as a textile manufacturing industry, named W.Wilson Cobbett Ltd.  At present, BBA groups operate in a global market in two distinctive areas of business.  First the aviation service systems which consist of Aviation Services and BBA aviation systems, through its subsidiaries in Latin America, US and Europe.  This division provides fuelling and refuelling services, cleaning, maintenance, aircraft sales, servicing, repair, technical support and training of pilots.  Next, BBA develops specific material for different industrial and hygiene sectors. Herein, they provide non-fabric products by the mechanical interweavement of textile fibres for the manufacture of sanitary towels and babies nappies.  This business division also specializes in embossing activities for printing original colour motifs like kitchen paper. BBA Group is publicly recognized company traded on UK stock exchange.  The companies involved in such group focus on providing products and services to aviation industries and speciality materials industries.  The aviation services and systems groups serve regional airline, commercial and military aviation clients and world business aviation by it primary operating industries and their subsidiaries. Some of these industries are Signature Flight Support, International Turbine Service, Dallas Air motive and others.  The aviation division of BBA is known to be the 5th largest aviation groups in UK and amongst the top 40 largest industries in the world market.             Furthermore, BBA is also a vital player in the aviation support business. Such group has business operations at over 100 locations in the international market including 46 of the world’s top 100 airports.  Part of the companies business is joining mergers and acquisition. Such strategy helped the company to expand its business portfolio and expand their territories in the global market. Utilizing PEST Analysis In order to analyze the environmental aspects of BBA Group, PEST analysis will be used.  PEST Stands for Political, Economic, Sociocultural and Technological factors that influence Argyle’s overall performance in the market place. ·        Political Sector A company will not be able to gain success, good reputation and trust if it will not consider legal and political sector as part of their strategy.  BBA Group has been able to follow the principles of business ethics. Hence, the company considers legality in all their actions.  They make sure that all their products and services adhere to the standards and wills satisfy their client worldwide.  Politically, BBA group had been able to follow all the standards set by the country and other international organization satisfies their customers. ·        Economic Sector Economically, it can be said that throughout the years, BBA Group had enjoyed being at the top of its competitors.  The economic status of BBA is highly remarkable that it always give its consumers the best and quality products and services in the two business divisions.  In addition, the company’s growth and expansion on different countries in the world is an obvious evidence that BBA has been able to have a stable economic capacity to sustain and maintain its competitive position in the market place. ·        Sociocultural Sector Culture is an important factor in understanding an industry, because for any organization to operate effectively, it must for some extent have a general set of believe and assumptions on how culture will influence the productivity and the success or failure of any company. Culture environment is one of the important principles that influence the organization.  Hofstede (1991) identifies that there are four dimensions that differentiate cultures at a national level (power distance, individualism-collectivism, masculinity-femininity, uncertainty avoidance), which help to understand that people arrive to organizations with their own national culture.  In the BBA, the management sees to it that they value the opinion of their employees no matter what is their nationality.  Since, this company is competing globally; it cannot be denied that they need employees from different cultures to be in the company to help in the decision making.  It is also indicated that the international managers has been able to create a positive relationship in the local managers. Moreover, the management of the company has seen to it that they would be fair in treating all their employees. In addition, as mentioned earlier, the company sees to it that their social commitment is being achieved by satisfying the consumers with their quality products and services in aviation and special material industries. Herein, the company values the consumer by knowing their demands and providing their demands and in aviation and special material products. The business division of BBA has been able to make the company more competitive. Moreover, with the BBA core mission to provide customer satisfaction is also given emphasis. Accordingly, the company’s mission and vision can only be achieved if and only they would focus immensely on satisfying their customers and clients. BBA had many consumers all over the world and the company is succeeding due loyalty given by their target market. To be able to serve their customer and clients better, they have initialize a strategy which includes a set of strategies that greatly influence the whole corporation in achieving its goal. ·        Technological Sector The complexities of achieving business success through increased efficiency, effectiveness and competitiveness, combined with innovative applications of modern technology, has heightened the awareness of both Technology and business managers towards more strategically oriented approaches for planning and management of any industry (Luftman, Oldach & Lewis, 1993).  BBA has been able to use technological advancement for creating new and innovative products and services needed by its customers may it be from the aviation or the special materials business. Part of this is their utilization of modern technology in producing new products that will meet the demands of their target market. They also use the purpose of information technology by creating their own website to let their consumers have an easy access of knowing the company and the products and services that the company has made for them. Review Industry Structure             An industry is a group of firms that market its products closely substituted from each other.  According to Porter (1980), some industries tend to become more profitable and competitive than the others. Hence, an existing industry such as the BBA Group based in UK should always remember that their industry will only survive by utilizing a strategy that would enhance the competitiveness of the business. In Porter’s model, it is assumed that there are five forces that particularly affect an industry. The model is useful if a manager strives to get the better off rivals. The framework provides excellent understanding of the industry context in which the firm operates.             Porter’s Five Forces Model includes threat of entrance of new industries.  The main objective of BBA is to stay in the competitive position in the global market Although, the company knew that this type of industry belongs to higher entry barriers, the management has been able utilize an approach to make sure that the company will still be competitive in the international level.  In order for BBA to compete and stay in the international marketing environment, the management team had provided a long term vision to be followed by the industry as a whole. The use of merging and acquisitions has been able to strengthen the capability of the company to strongly and efficiently compete within the marketplace in both local and international arena.  The agreement made by BBA with these leading industries has strengthened their capabilities to compete in the global arena in terms of producing quality products and service especially for their aviation systems.  Moreover, with the existence of new entrants in this kind of business, the competition becomes tougher and tougher.  Since, these new entrants can be a threat for the company in terms of substitute products, BBA have again utilizes a strategy that will enhance their product more. Product differentiation approach was implemented by the company as their marketing strategy. This is to ensure that with these new entrants their product will still be different, unique and full of quality to satisfy their target market. The bargaining power of a supplier could be a threat for the profit of the company, and BBA management is aware of it.  Since the company’s goal is to provide the customers of their needs and expectations in terms of diamond production, the company has been able to utilize all its resources. In addition, BBA, also uses supply and distribution channel effectively. Porter’s also include in his model the concept of the bargaining power of Buyers. Hence, BBA sees to it that their clients will be satisfied in their products with regards to aviation or special material products or service.  According to the management of the company, the Argyle fundamental premise is a simple as achieving the core mission and objective by merely satisfying their customers and clients. And lastly, BBA also considers the intensity of rivalry.  In this manner, they are willing to provide strategies and techniques in a way that their competitors will see them as a tough competitor for the benefit of the whole organization. Since the competition of these industries worldwide is very strong, BBA utilizes all their resources to enhance the operation of the BBA and to be recognized as the leading industry in diamond production. They also tried to include innovative marketing strategy and used technologically advanced equipments to produce quality diamond products. Conclusion             Analysis shows that because of the management and marketing strategies of BBA Group, they are still enjoying their competitive position and competitive advantage in the global market.  In addition, it also shows that part of the generic strategy of the company is product or service differentiation and joining into mergers and acquisitions.  The company has been able to adapt to the marketing environment because of its strong commitment of providing quality products and services for both of their business operations. References BBA GROUP (2006).  Available at [www.bbagroup.com]. Accessed on [24/04/06].    BBA GROUP (2006).  Available at [http://uk.finance.yahoo.com/q/pr?s=BBA.L]. Accessed on [24/04/2006]. Hitt, MA, Ireland, RD and Hoskisson, RE, 2003, Strategic Management, Competitiveness and Globalization.  5th Edition. Thomson, Southwestern. Hofstede, G (1991). Culture and Organization. Software of the mind. New York: McGraw-Hall Book Company Luftman, J.N.; Lewis, P.R; Oldach, S.H. (1993). “Transforming the Enterprise: The Alignment of Business and Information Technology Strategies.” IBM Systems Journal 32(1): 198-221. Moschis, G, 1994, Marketing Strategies for the Mature Market, Westport, C.T.        Quorum Books Oliver, C, 1997, Sustainable competitive advantage: Combining institutional and resource-Based views. Strategic Management Journal, Vol 18. No. (9), pp. 697-713. Porter, M. E. (1980).  Competitive Strategy. Free Press.              Credit:ivythesis.typepad.com

Porter’s Five Forces Model on BBA GROUP – a textile company

Introduction Every business is subject to factors that affect the firm’s function as a whole. These factors are the ones attributed for the...

Porter’s Generic Strategies Model

BUSI0009 Business Strategy Section A Paragraph Answers Answer all 5 questions from this section. Write 1-2 paragraphs to answer these questions. Each question is worth 5 marks. Section A is worth 25 marks in total. Question 1 Critical Evaluation Critically identify two weaknesses of the Porter’s Generic Strategies model. (5 Marks) Question 2 Sources of Competitive Advantage Explain how the VRIO model can be used to help develop business strategy. (5 Marks) Question 3 Corporate Strategy Use the value chain model to explain a concentric diversification strategy. (5 Marks) Question 4 Industry Analysis Discuss the main limitation of using the Industry Groups approach to mapping competition in an industry. (5 Marks) Question 5 Business Strategy Explain the difference between ‘resources’ and ‘capabilities’. (5 Marks)     Section B Case Analysis Answer all 4 questions in this section. These questions all relate to the pre-seen case-study on Amazon Write up to half a page for each of these questions. Use appropriate theory and models to justify answers Section B is worth 75 marks in total. Question 6 Organisational Analysis Briefly outline Amazon’s current strategic position and current strategy. (20 marks) Question 7 Environmental Analysis What are the major industry level forces which Amazon faces? (20 marks) Question 8 Strategy for the Future Describe the strategy you would recommend to position Amazon for the future. (20 marks) Question 9 Action Planning Briefly summarise the major actions which are required to implement the new strategy for Amazon which you outlined in Question 8.   Question 10 Briefly disuse Amazon’s mission and vision (b) Identify Amazon’s stakeholders and apply the power-interest grid   Question 11             Identify the trends in Amazon’s environment using PESTLE.             (B).  identify opportunities and threats in Amazon’s environment.   Credit:ivythesis.typepad.com

Porter’s Generic Strategies Model

BUSI0009 Business Strategy Section A Paragraph Answers Answer all 5 questions from this section. Write 1-2 paragraphs to answer ...

Improving the consumer taste and market share of peak milk as against ideal milk in Ghana.

Peak Dairy Products are produced by FrieslandCampina WAMCO Plc. It is one of the most popular dairy product brands in Ghana. Its top competitor is the Ideal Full Cream Milk brand which are produced by Nestle Ghana Limited. Nestle Ghana Limited started business in Ghana in 1957 under the trading name of Nestle Products Limited with the importation of Nestle products such as milk and chocolates. In 1968, it was incorporated as Food Specialties Limited to manufacture and market well-known Nestle brands, The shareholders are Government acting by the National Investment Bank (49%) and Nestle SA (51%). In 1971 the production of the Ideal Milk started at the Tema Factory. The company became Nestle Ghana Limited in 1987. The main objectives of the company are the development of the local and regional West African market; the company already owns seven factories on the continent. At present the Ideal Milk brand holds the biggest market share with competitors such as Peak Milk lagging behind. Therefore, FrieslandCampina WAMCO aims to target more customers and eventually increase its market share. Recently the company introduced sachet versions of the popular Peak Milk. The aim is to reach more budget-conscious consumers. In the hopes of increasing its market share, the company offered an affordable category of Peak Milk without sacrificing the quality. In increasing the market share of a company, there are generic strategies that Porter (2000) suggests. These are: 1. Cost Leadership – this generic strategy calls for being the low cost producer in an industry for a given level of quality. The firm sells its products either at average industry prices to earn a profit higher than that of rivals, or below the average industry prices to gain market share. In the event of a price war, the firm can maintain some profitability while the competition suffers losses. Even without a price war, as the industry matures and prices decline, the firms that can produce more cheaply will remain profitable for a longer period of time. The cost leadership strategy usually targets a broad market. Some of the ways that firms acquire cost advantages are by improving process efficiencies, gaining unique access to a large source of lower cost materials, making optimal outsourcing and vertical integration decisions, or avoiding some costs altogether. If competing firms are unable to lower their costs by a similar amount, the firm may be able to sustain competitive advantage based on cost leadership. Firms that succeed in cost leadership often have the following internal strengths: ·         Access to the capital required to make a significant investment in production assets; this investment represents a barrier to entry that many firms may not overcome ·         Skill in designing products for efficient manufacturing ·         High level of expertise in manufacturing process engineering ·         Efficient distribution channels 2. Differentiation – differentiation strategy calls for the development of a product or service that offers unique attributes that are valued by customers and that customers perceive to be better than or different from the products of the competition. The value added by the uniqueness of the product may allow the firm to charge a premium price for it. The firm hopes that the higher price will more than cover the extra costs incurred in offering the unique product. Because of the product’s unique attributes, if suppliers increase their prices the firm may be able to pass along the costs to its customers who cannot find substitute products easily. Firms that succeed in a differentiation strategy often have the following internal strengths: ·         Access to leading scientific research ·         Highly skilled and creative product development team ·         Strong sales team with the ability to successfully communicate the perceived strengths of the product ·         Corporate reputation for quality and innovation   3. Focus – the focus strategy concentrates on a narrow segment and within that segments attempts to achieve either a cost advantage or differentiation. The premise is that the needs of the group can be better serviced by focusing entirely on it. A firm using a focus strategy often enjoys a high degree of customer loyalty, and this entrenched loyalty discourages other firms from competing directly. Firms that succeed in a focus strategy are able to tailor a broad range of product development strengths to a relatively narrow market segment that they know very well. Credit:ivythesis.typepad.com

Improving the consumer taste and market share of peak milk as against ideal milk in Ghana.

Peak Dairy Products are produced by FrieslandCampina WAMCO Plc. It is one of the most popular dairy product brands in Ghana. Its top comp...

Tesco Strategies

This paper discusses the strategies of a U.K.’s food retailer company (Tesco)—what strategy should be implemented, what strategies work, and what can be done to strengthen its industry. One strategy was chosen in the Porter’s Generic Strategies. A feasibility, acceptability and suitability analyses were also discussed. Lastly, Tesco’s current strategies were reviewed. TASK A: With the core purpose of “creating value for customers to earn their lifetime loyalty”, Tesco has become the number one food retailer in the United Kingdom. In 2001, Tesco has occupied 15.6% of the UK food market and became the market leader by 6%. Serving a population of 60 million, Tesco has 729 stores in the U.K., and continues to strive to improve and expand its growing services to the people.             Tesco’s share of the UK market has increased steadily since the early 1990s as a result of the customer focused strategy. Aimed for long-term growth, the strategy focuses on four elements: Core U.K. business, Non-food business, Retailing services, and International market.  To continue to grow market share is Tesco’s focus while ensuring to provide exceptional value and choice for their customers.  Aside from selling customers food products, Tesco also aims to improve its market share by offering non-food products which include a wide variety of electrical equipment, home entertainment, clothing, furniture, cooking tools and home furnishings. The strategy for retailing services also changes to respond to the shopping demands of the customers by providing new products and services. As the world’s largest grocery e-tailer, the website Tesco.com and Tesco Personal Finance demonstrate their ability to extend the Tesco brand to the international market. Recently, Tesco announced to launch a fixed line phone service in 2003. Tesco has also successfully opened up new growth markets in Central Europe and Asia. The proportion of total Group space outside of the UK was 45% at the end of 2003/2003. Tesco now operates in Hungary, Poland, the Czech Republic, the Slovak Republic, Thailand, South Korea, Taiwan, Republic of Ireland, and Malaysia. To sustain and strengthen Tesco’s leading industry position, Tesco should always strive to meet the growing needs of the customers. At present, health issues around the world are increasing and have become more pressing, and Tesco should continue to join the government, hospitals and institutions in promoting awareness to the people. In 2001, the Alzheimer’s Society and Alzheimer Scotland were Tesco Charities of the year. Cystic Fibrosis was the Tesco Charity of the year for 2002. In addition, Tesco is the national sponsor for Race for Life, in aid of the Imperial Cancer Research Fund where over 250,000 women have participated in raising more than £15m. In 2003, Tesco can get actively involved by sponsoring symposiums, talks, and seminars on health issues, with more focus on prevention of illnesses and other conditions. At the same time, Tesco can introduce and promote the fresh and nutritious food they can offer to the customers, and highlight the importance of good health in mind and body. Vitamins, food supplements and other medicines can be introduced as an addition to Tesco’s food and non-food lines. This strategy can greatly help millions of people by promoting awareness, and make them feel that their well-being is important and considered at Tesco’s. This, in turn, will gain their trust and lifetime loyalty, the core purposes of Tesco, while providing the essentials for good health all in one place. To sell health essential products, Tesco can apply the Cost Leadership Strategy. This is one of Porter’s Generic Strategies which targets a broad market and aims to present customers with products at a low cost for a given level of quality. The industry sells its products such as medicines either at average industry prices to earn a profit higher than that of rivals, or below the average industry prices to gain market share. In the event of a price war, the firm can maintain some profitability while the competition suffers losses. Even without a price war, as the industry matures and prices decline, the firms that can produce more cheaply will remain profitable for a longer period of time.  Some of the ways that firms acquire cost advantages are by improving process efficiencies, gaining unique access to a large source of lower cost materials, making optimal outsourcing and vertical integration decisions, or avoiding some costs altogether. If competing firms are unable to lower their costs by a similar amount, the firm may be able to sustain a competitive advantage based on cost leadership. Industries that succeed in cost leadership often have internal strengths such as access to the capital required to make a significant investment in production assets. This investment represents a barrier to entry that many firms may not overcome. Another strength is the skill in designing products for efficient manufacturing, for example, having a small component count to shorten the assembly process.  The industry must also have a high level of expertise in manufacturing process engineering and efficient distribution channels to achieve success.  Although the low-cost strategy can lead to an increase in market share, it also presents its own risks.  For example, other firms may be able to lower their costs as well. As technology improves, the competition may be able to leapfrog the production capabilities, thus eliminating the competitive advantage. Additionally, several firms following a focus strategy and targeting various narrow markets may be able to achieve an even lower cost within their segments and as a group gain significant market share. The Cost Leadership Strategy is suitable for Tesco industries since Tesco is the current leading food retailer in U.K., and has expanded in more than ten countries in Europe and Asia.  With 979 stores in U.K., the market share is now over 16.5%. Using this strategy will continue to increase its market share, and maintain its top position in the industry, which ideally fits Tesco’s goals and missions. The cost leadership strategy will give more focus on the tangible costs and benefits. This will also bring value to customers and establish a competitive price position against competitors. Because Tesco is so large and successful, it can afford to cut prices to a much larger degree than many of its competitors – for example when there is a general reduction in prices of 2-3%, Tesco prices can be reduced by 4%. Tesco profits have increased every year since 1987, announcing profits of 1.07 Billion pounds in April 2001. Its enormous share of the UK food market will no doubt continue to grow using this strategy.   Moreover, the Cost Leadership strategy is feasible, which means that it can be implemented successfully using Tesco’s available resources. The funds required, its sources and timing, and the product sources are sufficient to apply the strategy successfully.  This strategy will also meet the expectations of the stakeholders in the company through strategic implementation which includes resource management, organizational structure, and management of change. Using Ansoff’s Matrix to achieve growth, it can be seen that Tesco has implemented various strategies over the years. Tesco has used Market Penetration by marketing existing products to existing customers. It has increased its revenue by promoting Tesco’s products. Tesco now sells approximately 40,000 food products in a superstore, as well as clothing and other non-food lines. This shows that Tesco has successfully adapted the unrelated Diversification strategy to improve its market share, by adding CDs, videos, books, wine, games and others to their product line. This strategy has greatly increased the target customers, increasing Tesco’s market share and getting it to the top of the supermarket industries in the United Kingdom.   Tesco has also adapted the Market Development and Product Development strategies by marketing their existing products in a new market. This was implemented by exporting products, and by marketing it in different regions in U.K. as well as in other countries. Products were developed in Tesco by replacing or updating models such as home equipment to give the customers what they want and what they need. Tesco also developed their own-brand products, available in three levels, Value, Normal and Finest which accounts for approximately 50% of sales.      TASK B: Tesco’s current approach to the process of strategic management is a long-term strategical plan, with focus on creating value to gain the lifetime loyalty of their customers. Tesco has four parts to its strategy: to maintain a strong core UK business, to be as strong in non-food as food, to grow internationally and to move into retailing services such as on-line shopping. This strategy is delivering the fastest organic growth of any major retailer in the world, with group sales of £22.8bn ( billion) and group profit before tax of £1.07bn (.5 billion). The company operates over 900 stores in the United Kingdom, Republic of Ireland, Hungary, Poland, Czech Republic, Slovakia, Thailand, South Korea and Taiwan. It has 240,000 staff worldwide and 25million sq. ft. of sales space, of which nearly 40% is outside of the UK. To expand its success in its food retail operations, Tesco made multi-million pound investments in food store development in low-income areas. By linking with like-minded public and private sector organizations such as local community based organizations, colleges, and chambers of commerce, the company has opened locations in economically disadvantaged areas in the U.K. Tesco’s strategy included an upfront investment in local workforce training with a special emphasis on the long-term unemployed. To work with local labor pools, Tesco invested in the development of literacy, as well as retail skills, and adapted the corporate recruitment process to enable trainees to the transition from welfare to work without losing benefits. Jobs were offered based on aptitude, not qualifications, and everyone interested in working was given the opportunity to learn the appropriate skills. The recruitment process guaranteed locally unemployed people a job before training commenced, subject to good attendance and attainment of skills. In addition to training, Tesco also addressed problems for job seekers such as transportation and childcare. With over 1,500 jobs created for area residents, Tesco has been successful in recruiting and retaining loyal staff for its stores. On the other hand, two core values are emphasized in Tesco’s strategy which focus on providing the needs of the customers, and create Tesco teams to serve them. The first value is to gain the trust of customers.  They make the customers believe that no one tries harder for customers than the Tesco team. They understand customers better than anyone, and they look after their people so they can look after their customers. They use their strengths to deliver the best values, and strive to be energetic, innovative and be first for their customers.  The second value is to strengthen the Tesco team.  To work towards success is to work as a team, trusting and respecting each other. They should always strive to do their best, while supporting and sharing knowledge with each member of the team. Most importantly, the Tesco strategy encourages the team to enjoy work, to celebrate success, and to learn from experience.  Tesco has over 195,000 people committed to serve customers and with these winning core values. This has enabled Tesco to become U.K.’s largest and best value supermarket, and to have the biggest on-line supermarket offer in the world. Tesco has been innovative in developing different store formats – Extra, Superstore, Metro and Express – to meet all the different customers’ needs. Tesco has started introducing our non-food offer into existing Superstores as well as into Extra stores. In 2002, 30 Express convenience stores were opened. Customer Champions was also launched to be the friendly face of Tesco in more than 300 stores. Now there are over 800 champions who welcome customers as they enter the store and deal with any customer queries or concerns, bringing the benefit of Tesco’s customer focus and value to many more communities. This was the basis of the winning formula that is still successful today. In recent times, Tesco has not dramatically changed its approach.  Tesco continues to open new stores at a steady rate – the very large Tesco Extras (where they can get space and planning permission) down to the convenience end with Metros and Expresses. Tesco has remained price competitive. At a time when there is serious price competition between the major multiples, Tesco has stayed ahead of the game. Currently there is price deflation in groceries of around 2-3%, whereas Tesco’s deflation has been nearer 4% in recent periods, showing that they are now more price competitive than they were.  Retailing services are a key part of the Tesco strategy for growth. They have developed the best on-line grocery home shopping system in the world which they know can be of use to other retailers. Tesco believes that on-line grocery is a service that meets the needs of busy consumers, and hopes to gain advantage since shopping through internet is getting more popular in many countries. Tesco.com is the largest and most successful Internet-based grocery home shopping service in the world. In the UK this service is profitable, has almost 1 million registered customers, 70,000 orders per week and annualized sales running at a rate of £300m (0m). Tesco.com now operates on three continents. Tesco.com internet home shopping model was launched in the USA, with Safeway Inc., combining Tesco’s expertise in store-based home shopping with Safeway Inc’s leading presence in the American market. Customers in Portland, Oregon, were first to try the new service, followed by San Francisco. Tesco.com is also growing rapidly in the Republic of Ireland, where the service covers 70% of the population. Customers can also shop online with Tesco in South Korea, where e-homeplus service from the Homeplus store in Ansan, near Seoul was launched.  All these factors have helped Tesco to maintain momentum in its share growth, which continues to increase in the short term – achieving another all time high of 24.7% in the latest quarter and exceeding 25% for the first time ever in the four weeks to June. Tesco’s main source of growth has been the increase in its customer base with nearly 41% of all households in Britain visiting their stores at least once every four weeks (representing nearly nine and a half million households), compared to just under 40% a year ago. Furthermore, these customers are now visiting Tesco’s more often – an average of 3.9 visits every 4 weeks compared to 3.8.   Even if prices are falling, consumers continue to bring the same volume of goods on each shopping trip from Tesco, and Tesco continues to gain its market share. Based on the principles of better, simpler and cheaper, Tesco’s operations were improved and efficiencies were increased. A combination of new systems and new processes were implemented which help in achieving savings of over £200m a year. Tesco uses the continuous replenishment system, the world’s first store-specific merchandising system used to tailor each store range to meet the precise needs of its customers. This is operating on nearly all food and drink lines, raising availability and simplifying operations. Tesco has also established a team to increase efficiency by better managing the movement of goods between suppliers and regional distribution centers, reducing costs, miles traveled empty and lead times.  Two distribution centers in U.K. were also opened, providing an 18% increase in Tesco’s capacity, and strengthening the distribution network. In addition, change programs, based on the successful UK template, were established in Central Europe and Thailand which has made operations better for customers, simpler for staff and cheaper for the business. Tesco has also offered Tesco Personal Finance (TPF), now with over 2.5 million accounts, and share of profit rising from £3 million to £20 million.   With 20% of sales now originating from the internet and 80% of business coming through the stores, Tesco’s products are available where and when the customers want them. Not only does Tesco offer food and non-food products, but Motor, Home, Travel, Pet, and Life Insurances are offered as well. Underpinning Tesco’s success is excellent management and an obsession with operational efficiency and productivity gains, which the company uses to keep prices low or to improve service rather than to increase its operating margins.  Its well-implemented strategies and continuous flow of innovative and new ideas strengthen its industry, as it continuously caters to the needs of the people.               Credit:ivythesis.typepad.com

Tesco Strategies

This paper discusses the strategies of a U.K.’s food retailer company (Tesco) —what strategy should be implemented, what strate...

Corporate Strategic Review on TESCO

Corporate Strategic Review on TESCO Task A. Rethinking UK Tesco’s Adherence to Local Agricultural Supply Strategy             Tesco’s apparent nationalistic approach in acquiring agricultural products in their supermarket chains, have been violating the competitive advantage tenet as it continues to buy the expensive British agricultural products, instead of getting supplies from other countries who can provide a quality yet cheaper products. Tesco is British agriculture’s biggest customer – selling more British food than any other retailer. All Tesco fresh, UHT and organic milk comes from British Farms and 100% of our fresh shell eggs, including organic eggs, are British. After tax Tesco reveals they only make 3p for every £1 of product that they sell. Profits are driven by volume rather than margin. Moreover, on most fresh meat and dairy lines Tesco asserts that they barely cover the costs and often they buy British produce even when prices are lower abroad. In addition, they buy from suppliers, not direct from farmers, so they pay the market price –they don’t set the farm gate prices. Thus, Tesco have been containing costs that would have been significantly reduced if they do not strictly implement this policy. In fact, the Tesco management has already asserted that they buy nearly all fresh meat from the UK, importing only when British meat is unavailable or quality dictates. In this regard, they discloses that they ensure the standards of food safety; quality and welfare are the same regardless of where the food is produced. When Tesco assures that the quality will not be significantly changed and the question of quality is settled, why resort to the higher-priced goods when cheaper products are available? Using Porter’s Generic Strategies, this approach of Tesco shall be evaluated and assessed. It will also be subjected to the five industry forces such as: Entry Barrier, Buyer Power, Supplier Power, Threats of Substitute and Rivalry. Tesco can be categorized in Porter’s Generic Strategies as belonging to the Broad Industry- as it targets an economy of scale whose product line is extensive. Moreover, the standard banner of Tesco had been on its affordability thus, placing it on the Low-cost strategy. There are five advantages of this approach as outlined by Porter: In the entry level, Cost Leaders has the ability to cut price in retaliation and deters potential entrants. Second, they have the ability to offer lower price to buyers. Moreover, they are better insulated from powerful suppliers. Fourth, they can use low price to defend against substitutes. And lastly, they can are better able to compete on price.   Porter’s Generic Strategies 			Target Scope 			Advantage 			Low Cost 			Product Uniqueness 			 			Broad 			(Industry Wide) 			Cost Leadership 			Strategy 			Differentiation 			Strategy 			 			Narrow 			(Market Segment) 			Focus 			Strategy 			(low cost) 			Focus 			Strategy 			(differentiation   However, Tesco despite being the dominant chain store in UK have yet to contain market competition as other companies such as J Sainsbury continues to share a large chunk of consumers that Tesco also targets. In fact the statistics below proves that J Sainsbury have kept up with the competition by substantially sustaining the gap between the market leader. Moreover, other companies has also a significant market share such as the ASDA Group, Safeway and Somerfield. All of whom had been strategically positioning themselves in the market to get a bigger share of the market.   		Rank 2000 		Company & Operations 		Sectors 		Sales 99/00 		Sales 98/99 		Sales 97/98 		1 		Tesco Plc 		Grocers 		16,958,000 		15,835,000 		14,971,000 		2 		J Sainsbury Plc 		Grocers; DIY; mixed goods 		13,570,000 		13,184,500 		12,682,000   Thus, while Tesco dominates the market, it does not have the capacity to control the marketplace because of the close competition that the other companies offer. Moreover, the ability to cut back prices to deter competition may only be possible if the rival companies are small. In terms of size, the other companies are actually on a head to head contest with the other corporations. Competitive advantage would thus be fought in the ability of the companies to provide high-quality products on cheaper prices without compromising profitability. Thus, importing agricultural products on countries that can provide it at a much cheaper price would provide the optimum advantage for Tesco in terms of lowering the cost in the supply chain.   Feasibility, Acceptability and Suitability Analysis Tesco works on such a wide range of customers thus supermarkets respond to customers’ demands through low prices are essential for families on a budget. Low prices are also good for the economy – supermarkets have played an essential role in contributing to low inflation. The feasibility and acceptability of providing such substitutes would be the core dilemma of importing agricultural products aside from the employment issues that it may trigger. However since all imports of agricultural and food items are subject to the sanitary and phytosanitary regulations of the EU as well as certification requirements specified by the UK veterinary and plant health authorities, there can be no question on the quality of the imported products.             Using the Ansoff Matrix (see Appendix 1), we can state that the selling of imported agricultural products in the UK market has already its own market share- there is an existing market. The problem lies in increasing this market. Packaging the imported agricultural products to suit the needs of the UK market by selling the expected quality at an affordable price can do this. In this stage, the firm seeks to achieve growth with existing products in their current market segments, aiming to increase its market share. Penetrating this market this market and expanding it to include the loyal followers of the Tesco groceries would greatly boost the company and the customers of the imported products.             The Implementation Process would entail a great cost for Tesco but only in the short run. Moreover, the cost can be covered by the reduction in prices that they can get from the imported materials. For more convenience, the processing would also take place in the country where the product had been imported. This would then result to the cost reduction that can propel the marketing campaign on the benefits and the affordability of the imported products. The marketing campaign will be a continuous process. Implementation Diagram                                                                                   Task B. TESCO’s Approach to Strategic Management       Strategic Management plays the most critical role in TESCO’s dominance of the UK’s retailing.  In 2002 sales in the core UK market have grown by 7.9% and underlying operating profit by 6.9% reinforcing their position as the number one food retailer in the UK  (see Appendix 2). In fact the growth seems to be soaring by the new developments such as the opening of 62 new stores in 2002 adding a further 1.4 million sq ft, acquiring 1,202 T&S Stores, a leading convenience retailer, giving TESCO an additional 1.8 million sq ft. This brings the total number of stores in the UK to 1,982.                 This overarching progress though was not attained over time but is a product of a thorough and a premeditated examination of market trends and strategies that sought to revolutionalize the retailing industry in the UK. Thus, this allowed TESCO to rise in the retailing industry and is now generally regarded as the primary model of strategic planning in retail management. Strategic Management Style At Tesco Michael Porter led the team for Project Future – now recognized as one of Terry Leahy’s major contributions to their continuing dominance of the Grocery sector. In the words of Phil Clarke project Future brought about the “most dramatic change in working practices and the way in which stores are led in Tesco’s history”. The realised benefits of some £40 million of savings and revenue growth were considered almost as important as the change in culture. The project scope covered redesign of in-store processes, new approaches to store management and the introduction of a Balanced Scorecard (known as the Steering Wheel) tailored to each store. 				Mission & 				    Objectives   		 					 					Environmental   					Scanning   		 					Strategy 					    Formulation   		 					Strategy 					 Implementation   		 					 					Evaluation       					& Control   Strategic Management Style in the Long-term Tesco’s strategic management style is simple: use Porter’s Generic Strategy as a guide. Product differentiation and affordability has indeed brought retailing for Tesco on new heights. By developing this kind of strategy coupled with customer convenience, the company was able to produce economies of scale: the entire consumer populace is their target market.  At Tesco, the mission and objective is clear- attain market dominance by cultivating the customer loyalty to the company. Thus, aside from the strategies mentioned earlier, they have also launched environmental preservation projects that answer the growing concern for the environment. Tesco has a comprehensive recycling programme for customers and its own operations. There are recycling banks at over 500 of our larger stores, and Christmas card and carrier bag recycling facilities too.  The step change programme has delivered £230m of new efficiency savings this year and over £600m in the past three years. This year saw great progress with Primary Distribution, allowing Tesco to take control of product from the factory gates to distribution centres, improving efficiency and delivering cost benefits that reinvest in customer initiatives. All products have now been transferred to Continuous Replenishment system. This has delivered substantial benefits to the business and reduced the time it takes for a product to get from supplier to shelf. Customer convenience has also been one of the keys of Tesco’s strategic management plan. Moreover, they have developed several market designs to keep their customers satisfied. For instance, they created different types of stores that seek to cater to the different needs of the UK market. They have four different store formats in the UK: Extra, Superstore, Metro and Express. Further, they Tesco does not rest on just building these types of store but also strives to maintain and expand it. In 2002, Tesco have invested over £150m into the Refresh programme to help serve customers better and improve availability, operations and store environment. A quarter of Superstores have received the customer-focused improvements in key areas including car parking, trolleys, signage, counters and availability. Express offers customers the chance to stock up on shopping at their convenience at a diverse range of locations, from inner city stores such as Maida Vale, London, to villages like Yateley in Hampshire. Although on a smaller scale than larger supermarkets, it will provide a broad but carefully selected range of essential everyday products. In the stores that convert to Express, customers will benefit from lower prices, improved service, better fresh food ranges and store environment, as well as better availability, quality and choice. This will also allow Tesco to accelerate their growth in the £20bn convenience market while continuing to run the remainder as One·Stop Shops. However, the profitability and growth always goes with the development of the human resource personnel. The human capital after all, continues to be the single most important capital in businesses. Thus, recognizing that they are an essential element to the success and future of providing quality differentiated services at an affordable prices, Tesco had also a set of principles that promotes the growth and convenience of its employees. The Tesco Values are a set of principles that describe two work ethics such as: ‘Treat people how we like to be treated’ and ‘No-one tries harder for customers’. Also, employee benefits such as childcare voucher scheme and Shares in Success, where staff with more than a year’s service will be eligible for free shares has been devised. Scenario Planning and Emergent Strategy Market analysts have regarded the key to Tesco’s successful UK strategy is their delivery of first-class value, choice and convenience throughout their customer offer. In this regard they have created schemes to gain and create value for customers to earn lifetime loyalty. Projects under the banner ‘Every Little Helps’ were devised for this purpose. This means keeping the aisles clear, ensuring that customer can buy what they want, that prices at Tesco are low, that smaller queues at the checkout are planned and that every customer is offered help.       Moreover, innovations have also been made in response to customers’ needs. For instance, they have introduced over 5,000 new food lines in 2002, have led the way in bringing in screw-cap wines, Grab and Go counters have been introduced into over 500 stores, offering customers a huge choice of cheese and hot chicken without having to queue, making it simpler and cheaper to operate.                 These innovations and situational insights by Tesco no matter how small have significantly affected the strategies mentioned. Moreover, the move to develop the online market retailing has also been at works at Tesco. It has yet to be developed at its fullest but the prospects according to market analysts shows that the expansion using E-commerce is excellent.                 Tesco’s strategic management is relatively stable because of the changes that had been instituted at every step of the process. This is also the primary reason why Tesco continues to be the exemplary model that retailing business resembles in terms of strategy. Tesco however can make several improvements: at the level of strategy formulation and strategy implementation, they can assess their effectivity by evaluating not only the customers but more importantly, the rank and file employees. These personnel often interacts with the customer themselves thus, the areas of improvement in terms of product innovation, prices and consumer policies can better be improved. Further, in the cost reduction schemes- another factor where Tesco had developed its strength, they can look into the potential of utilizing raw materials and foreign workers in order to reduce cost without sacrificing the quality of their products.        The dominance of Tesco in UK retailing proves nothing to be desired. However, the advent of E-commerce may just be the main competition that it will encounter if their E-marketing strategy will not be expanded. Thus, retailing is no longer contained in the portals of stores but rather on the homes of the consumers. Appendix 1 Ansoff Matrix 			  			Existing Products 			New Products 			Existing 			Markets 			Market Penetration   			Product 			Development       			New 			Markets 			 			   Market Development       			 Diversification         Appendix 2   		  		  		  		Retail Sales (£,000) 		Rank 2000 		Company & Operations 		Sectors 		Sales 99/00 		Sales 98/99 		Sales 97/98 		1 		Tesco Plc 		Grocers 		16,958,000 		15,835,000 		14,971,000 		2 		J Sainsbury Plc 		Grocers; DIY; mixed goods 		13,570,000 		13,184,500 		12,682,000 		3 		ASDA Group Plc 		Grocers 		9,204,000 		8,198,300 		7,619,200 		4 		Safeway Plc 		Grocers 		7,659,200 		7,510,700 		6,978,700 		5 		Marks & Spencer Plc 		Mixed goods 		6,482,700 		6,601,100 		6,695,800 		6 		Kingfisher Plc 		Mixed goods; DIY; 		electricals; drug stores; music goods 		6,098,644 		5,412,728 		5,046,812 		7 		Somerfield Plc 		Grocers 		5,465,700 		5,897,900 		3,483,600 		8 		Boots Company Plc 		Chemist, opticians 		4,668,000 		4,474,700 		4,465,300 		9 		GUS (UK Retail) 		Mixed goods 		3,810,100 		3,675,600 		3,597,500 		10 		Dixons Group Plc 		Electricals 		3,377,000 		2,945,400 		2,838,200 		11 		John Lewis Partnership 		Plc 		Grocers; department 		stores 		3,374,400 		3,168,000 		3,117,400 		12 		Wm Morrison Supermarkets 		Plc 		Grocers 		2,970,100 		2,533,781 		2,296,996                     Credit:ivythesis.typepad.com

Corporate Strategic Review on TESCO

Corporate Strategic Review on TESCO Task A. Rethinking UK Tesco’s Adherence to Local Agricultural Supply Strategy Tesco’s ap...