This study explores the relationship between different level of strategy and performance of Tesco (to-what-extent-strategy-influence-the-company-performance)
According to Freedman (2015) strategy is specific course of actions to achieve desire outcome. Strategy is an important part of company management process and gives direction to achieve goals. Moreover, companies with clear strategy outperform the competitors when compare with firms having mixed strategy. Bacher (2007) elaborated that contingency theory define the optimal strategy of company depend upon availability of internal and external resources. Strategy creates a vision for company and thus, it is important input for the strategic decision of company.
Strategic planning involves a process to undertake different activities and actions to set and achieve the objectives of organisation and add value. Strategy formulation in an organisation is important process to systematically enable the company to set and attain goals though crafting plans and putting these plans into action (Porter, 2008).
According to Daft (2010) organisation performance is known as the ability of organisation to deploy its resources in efficient manner to achieve objectives of organisation. In todays’ competitive world, the value of strategy could not emphasise less because need for increased productivity, profitability, cost control and improved quality. Strategy formulation and implementation allows realising the benefits through allocating resources and achieving desired outcomes. In other words, performance evolves the way in which objectives are translated into outcomes (Daft, 2010).
The purpose of research is to explore the impact of different level of strategy on the performance of firm. The factors such as strategy formulation and quality as well as implementation affect the performance of firm among competitors. Strategy is important to response the competition as well as manages the changing paradigm of the business environment. Moreover, strategy in the long-term approach enclosed the activities for value creation for whole organisation.
There are three levels of strategy in an organisation which are corporate, business and operational strategy. The relationship between the strategy and performance is an important aspect in strategic management. The empirical literature highlights the positive relationship between the strategy and organisational performance. Strategic planning process embraces both implicit and explicit perspective for the integration and adopts the holistic framework (Grant, 2016).
Thus, strategy formulation involves crafting the strategy whereas implementation is a process of putting plans into action. Managers constantly thrive to set strategy which boosts the performance of business.
Globalisation has changed the dynamic of business and company face competition and pressure to deliver results for the stakeholders. To tackle the external environment, companies need to response in timely manner and experience continuous growth. Therefore, to align internal and external resources and capabilities of business, company need to develop response and deploy strategic choices. It is imperative for companies to deliver consistent business and finance performance through exploring opportunities and threat present in external environment.
The strategic alignment of internal capabilities and external environment enable the firm to achieve its objectives. Strategic management is the important business process and it defines the success or failure of business (Dabic, Gonzalez-Loureiro and Furrer, 2014).
Tripathi and Agrawal (2014) highlighted the ultimate importance in the success of business because companies develop the mission, set future direction and elaborate the process of value creation. Moreover, it is important company effectively deploy competitive strategy to response to outperform competitors and achieve desire profitability. Company achieve the competitive edge through position its product effectively in the market to enhance financial performance. The strategy of company influences the performance and long-term survival of company.
Therefore, this research attempts to evaluate the strategy content and context in Tesco and evaluate the influence of strategy on the performance of Tesco.
This study aims to investigate the strategy influence on the performance of Tesco through two dimensional approaches. First, study evaluates the relationship between the strategic planning and performance and secondly, it analyse how implementation contributes towards the performance of Tesco. The specific research objectives are
For this study, mix methodology is used to explore the impact of strategy on the performance of Tesco. Mix methodology is used to investigate the different level of strategies in Tesco and how it impacts the performance of company. For this study, both qualitative and quantitative secondary data is collected to investigate the strategy formulation and implementation at both corporate and business level and how strategy influences the performance of various business unit of Tesco.
The multiple sources of secondary data is analysed to present holistic perspective on relationship between strategy and performance of Tesco. The qualitative approach in this context, would allow investigating the different level of strategy and quantitative approach is used to analyse the performance of Tesco (Creswell, 2013).
This study is based on five chapters. The first chapter of study enclosed the research background and research objectives of this study. The second chapter of study enclosed the literature review on the strategy, linkage of strategy and performance and measurement of performance. The literature elaborates strategies typologies and level of strategy formulation and implementation in organisation. The third chapter of study analyse and evaluate the suitability of research methodology for this study and rationale for selecting specific research approach. The fourth chapter of study present the finding and discuss the result in the light literature review. The fifth section of study draw conclusion and discuss the future direction of research.
This chapter of study critically assess the literature review on the strategy, linkage of strategy and performance and measurement of performance. The literature elaborates strategies typologies and level of strategy formulation and implementation in organisation. The literature discusses corporate strategy and content of strategy in the light of Chandler framework. In addition, porter competitive strategies which are cost leadership, differentiation and focus strategy are discussed and evaluated. Furthermore, literature on performance of firm is examined. Finally, literature enclosed relationship between performance and strategy of firm.
The Classical school of thought is based on the rational planning approach which highlights the long-term perspective of planning. This involves achievement of organisation objective through the efficient allocation of resources (Grant, 2016). According to Chandler (1962), the strategy is determination of long-term objectives and goals of an organisation, selecting the course of action as well as the allocation of resources to achieve goals of organisation.
Moreover, Porter (1998) a well-crafted strategy account and appraise the internal competencies of organisation but also anticipate external environment. The strategy is pattern to integrate the objectives of company through policies and actions in a cohesive manner.
Mintzberg (1996) discusses the four evolutionary views for the strategy. First, is intended strategy (rational planning) which highlights organisation planning to do in future. Second is the unrealised strategy which elaborates the failure for the organisation (what is not achieved). The third is an emergent approach that is developed out of pattern of behaviour (during implementation). The fourth is realised strategy which highlights the final outcome from the process and actions (Abraham, 2013).
Bisbe and Malagueno (2012) evaluated that the school of strategy are classified into three groups. The first group enclosed two schools which elaborate perspective (entrepreneurial) and descriptive (configuration). The second group enclosed three schools and defined strategy on three perspectives which are planning, design and positioning. The third group enclosed five schools of through and consider strategy as the result of five elements which are learning, cognitive, culture, power and environment. Strategic management is the important business process and it defines the success or failure of business. It has ultimate importance in the success of business because companies develop the mission, set future direction and elaborate the process of value creation (Eden and Ackermann, 2013).
Strategic management approach improves the performance of the business and divided into two areas which are strategy formulation and implementation. Strategic planning process embraces both implicit and explicit perspective for the integration and adopts the holistic framework. Therefore, strategy formulation involves crafting the strategy whereas implementation is a process of putting plans into action. Managers constantly thrive to set strategy which boosts the performance of business (Andrews et al., 2012).
Grewal et al (2016) analysed that the strategy of firm deals with three important elements which are nature of particular strategy, the scope of the strategy and overall goal for the company. The overall goal of the company is expressed through a mission statement. The scope of strategy enclosed the degree of prevalence and control for strategy implemented in an organisation. The strategy crafted in an organisation involves patterns of decision and actions embrace number of actions and programs for the growth and evolution of the company.
The process involves a mechanism for the development of strategy and realisation through implementation. The strategy formulation is related to organisation setting and relates to both internal and external factors of organisation which influence the process of strategic planning (Chang, 2016).
The contingent factors linked to strategy formulation are age and size of the firm, leadership, culture and personal attributes involved in the process strategy formulation. The relationship between the strategy and performance is an important aspect in strategic management.
The empirical literature highlights the positive relationship between the strategy and organisational performance. The influence of the internal and external contextual factors elaborates the effectiveness of the strategy in term of embracing organisation performance (Pondeville, Swaen and Ronge, 2013).
According to Mintzberg (2000), strategy evolves plan, patterns and perspective and these elements represent perspective for strategic planning. Porter (1996) added that strategy is important to response the competition as well as manage the changing paradigm of the business environment. Moreover, operationally effective and strategy is two different elements.
Porter (2000) elaborated the importance of strategy as the long-term positioning of the company which enclosed the activities for value creation for whole organisation. Hubbard (2001) defines the strategy as decisions with long-term impact on operations of the organisation as well as activities to implement these decisions for value creation. The purpose of strategy is to set direction and create value to outperform the competitors through implementing those decisions (Drnevich and Croson, 2013).
There are three levels of strategy in an organisation which are corporate, business and operational strategy. The focus of the corporate strategy is to the whole business and enclosed three important elements for company which are stability, growth and retrenchment for the whole business. Moreover, the business level strategy aims to achieve the competitive advantage for define market and segment. Finally, operational level strategy elaborates how business processes and operation deliver value for the business (Lillis and Sweeney, 2013).
Mintzberg (2000) defines strategy as a process and stream of decisions. Corporate strategy deals with the questions of what, and how many, product markets a firm should be operating. Corporate strategy has been defined as actions that are taken by firms in order to achieve competitive advantage through managing a diverse group of businesses that compete in different industries and product markets.
According to figure 1 below, the difference between the intended and realized strategy is evident and comparing two highlight the difference between realised and deliberate strategy, intended and emergent strategies (Ward, Kakabadse and Bowman, 2005).
Mirabeau and Maguire (2014) elaborated the key difference between emergent and deliberate strategy is depend upon the control and direction as well as desire to get things done (strategic learning). For the deliberate strategy, it is important that three conditions are satisfied which are existence of intention, acceptability of all stakeholders and external environment is predictable.
For emergent strategies, there must be consistency overtime, unrealised strategy and absence of intention. In companies, number of strategies have characteristic of both approach and planning process starts with deliberate strategy and end in reflective characteristic of emergent approach (Hill, Jones and Schilling, 2014).
According to Chandler (2016), strategy enclosed strategic decision for long-term survival and growth of the firm. The initial stage involves the performance of the single unit and success result in the development of predictable plans. The four types of strategy discussed by the Chandler are a geographical expansion, volume expansion, product diversification and vertical integration (Chandler, 2016). These are discussed in detail below
The initial stage of company is introduction of its product and after success, company first strategy is to expand the existing product or services in current market. Volume expansion enclosed planning for product-market structure and involves maximising the effectiveness of value chain through producing and selling the large number of products to existing customer. Once company expand its product and services the next logical strategy is geographical expansion. Company expand its existing product and services into new geographical areas and locations which include the international expansion of business (Baden-Fuller and Mangematin, 2013).
Vertical integration of business is an attempt to expand through backward integration (acquiring raw materials) or vertical forward integration which involves distribution of products and services. It allows the companies to add value within given base of business. This is achieved through creating or buying the function or starting the new functions for the company. Therefore, vertical forward backward integration in case of supermarkets are the ‘generic product’ and vertical forwards integration is selling product through wide range of distribution channels (Lillis and Sweeney, 2013).
Berry (2015) stated that diversification means company move into new industries through merger, product and market development and joint ventures. Corporate strategy can be considered to be the choice between pursuing different types of growth through diversification. The diversification effects the resource allocation and efficiency of business and change structure of organisation. Firms pursue diversification to increase performance through simultaneous operation in multiple product or service markets.
For example, volume expansion is related single product in single industry focus on the low cost. The geographical expansion increases the uncertainty and complexity of business. Therefore, product based diversification affect the span of control and organisation structure which is followed by growth strategies (Rothaermel, 2015).
Richardson and Richardson (2016) proposed that corporate strategy involves the choice that firms make to pursue diversification into related product markets or into product markets that are unrelated to one another. The easy redeployment of financial assets provides a higher degree of flexibility in diversifying into different product markets. When financial assets are not the main available resource that a firm possesses, it is often excess capacity that drives diversification.
A main distinguishing factor in the pursuit of different corporate strategies is the need for firms to acquire new skills, techniques, and facilities. Firms that rely on their physical and non-financial assets for diversification are often more successful when diversifying into product markets that have some degree of relatedness to their existing product markets, particularly in the area of production technology (Grant, 2016).
Bowen, Baker and Powell (2015) added that lower flexibility in mobility and redeployment of such resources as excess capacities plays a constraining role in the ability of firms to diversify. Firms that rely on their physical and non-financial assets for diversification are often more successful when diversifying into product markets that have some degree of relatedness to their existing product markets, particularly in the area of production technology.
O’Brien et al (2014) added that corporate strategies include various dimensions that stem from the corporate level. Such dimensions could include corporate controls, HR practices, corporate structure, management preferences, and compensation and reward mechanisms. Firms diversify from single-product firms to limited diversification, related diversification, or unrelated diversification.
Weiss and Heyn (2013) argued that related diversification has often been considered a corporate strategy that enables firms to better exploit a core set of capabilities in order to achieve higher performance through creating economies of scope. Firms that pursue a related diversification corporate strategy intend to benefit from the created economies of scope and subsequent revenue and cost advantages. Such economies of scope are often created through synergies that can be made through sharing knowledge across products and markets (sales synergy) or skills possessed by management across business units.
When less than 70% of a firm’s revenue comes from its dominant business and many technological, product, and/or distribution linkages exist among all businesses of the firm, and then the firm is considered to be following a related constrained diversification strategy (Diestre and Santalo, 2013).
Berry (2015) added that firms that have diversified into multiple businesses are considered to be pursuing a related diversification strategy when any one of their business units accounts for less than 70% of all the revenues and when linkages between business units in terms of production, technology, or distribution exist. Pursuing related diversification is often supported by capabilities that exist within a firm’s core businesses. Factors like excess capacity in tangible resources such as the sales force have been suggested to be strong drivers of related diversification.
Related diversification corporate strategy intends to benefit from the created economies of scope and subsequent revenue and cost advantages. Such economies of scope are often created through synergies that can be made through sharing knowledge across products and markets (sales synergy) or skills possessed by management across business units (management synergies) (Schmidt, Makadok and Keil, 2015; Hashai, 2015).
Stagliano, Rocca and Rocca (2014) analysed that unrelated diversification is often confined to financial capital and liquid assets as the main resource to persist in their growth. Unlike related diversified firms that can benefit from sharing their resources across their multiple connected businesses, a lack of commonality among resources means that unrelated diversified firms should primarily rely on more financial resources.
In unrelated diversified firms, the mutual independence of business units from one another and the lack of cooperative linkages among them indicate that an approach to controlling business units that is different than that for related diversified firms is required at the corporate level (Picone and Dagnino, 2015).
Hill and Jones (2013) stated that business level strategy involves interaction of business with environment at two levels. First is that company adapt to external environment and second is how company compete with other companies. The strategic choice for company involves selecting generic strategy as well as competitive strategy. Business-level strategy embraces the competitive methods and support corporate strategy. This enables the firms to control operational cost, differentiation among the competitors and enclosed detail specification on how to implement the strategy (Chang, 2016).
The generic strategy deals with scope and mission of business and expressed through market and products. On the other hand, competitive strategy is concerned with creating competitive advantage. This focus of this study is on generic competitive strategy which is concerned with competitive advantage including cost leadership, differentiation and focus on strategy (Cost or differentiation) (Porter, 2008).
Michael Porter proposed the generic theory to analyse the strategic behaviour of the organisation. It is recognised as a dominant prototype for strategic planning (competitive strategy). Porter argued that competition prevails at business unit level and thus, competitive strategy is analysed at the business level (Porter, 1998). The theory proposes that company achieve the competitive edge through position its product effectively in the market to enhance financial performance (Porter, 2008).
Positioning allows the company to adapt to the external environment and decide the profitability of a company. The environment affects and shapes the strategies. To analyse the industry porter proposed the ‘five forces model’ to scan the competition in the external market. The five variables selected are bargaining power of customer, bargaining power of supplier, threat of new entrant and threat of substitute. The five forces model allows designing competitive strategies to defend company competitive position in the external market (Levinthal, 2016).
Moreover, Porter (1998) elaborates two types of competitive advantage company can achieve in the market which is cost leadership and differentiation. The strength of the company is based on the ability that either company have the cost advantage or differentiation in the market. Moreover, the company can purse focus strategy which could be cost focus or differentiation focus.
Figure 2 below enclosed the generic strategies and highlight the approaching company can take to achieve the competitive advantage. The cost leadership and differentiation are used to seek advantage in wide marker perspective. On the other hand, focus approach enables to tackle the narrow segment of a market. Nevertheless, the action and plans to implement the strategy vary from industry to industry (Charles et al., 2016).
Schermerhorn (2010) analsyed that cost leadership strategy enables the firm to focus to become lowest cost producer in the industry. Cost leadership implementation depends upon the structure of the industry and involves exploitation of all resources to achieve cost leadership. In the competitive market, if firm can achieve and sustain cost leadership, then it can outperform the competitor and dictate the market prices.
Cost leadership enclosed the actions to be lowest cost producer in the industry through employing range of actions such as tight cost control, economies of scale and reducing the discretionary cost such as research and development (Harrison and John, 2013).
However, cost leadership cannot ignore the differentiation bases and in case customer does not accept the product, then it requires selling the product below market average price. Therefore, cost leadership benefits may not realise because of quality demand by customers as well as cost control affect innovation and performance of business in long-term. The bargaining power of customer may force the competitor to reduce cost and efficient competitor sell product at lower cost which limited the bargaining power of customers. Cost leader maintain high level of efficiency and increase their profit margins (Wit and Meyer, 2010).
Thompson and Martin (2010) highlighted that differentiation allows the company sells product and service which believe unique in the whole industry and it is valued by the customers. The product attributes perceived to unique in the industry and unique position in the industry. The uniqueness allows the company to charge premium prices and differentiation can be achieved through product itself, marketing and distribution or board range of factors. The differentiation allows achieving above performance and premium of product delivers allows recouping the cost (Conklin, 2009).
In differentiation approach brand loyalty makes customer less sensitive to the price which reduce bargaining power of customer. The differentiation is achieve through distinct competencies and create sustain competitive advantage. In case, customer is concerned about the price of product then differentiation is nullified. However, customer loyalty provides the immunity for the firm to response substitute products (Wit and Meyer, 2010).
The focus strategy is different when compare with cost leadership or differentiation and focus strategy involves targeting particular segment of market and tailor strategy to meet the demand of target market segment. The focus strategy allows exploiting the resources and targeting narrow segment of market. For the success of the focus strategy, it is important that selected market segment is different to other segments and focusing allows achieving competitive advantage in particular segment of market (Rosenberg Hansen and Ferlie, 2016).
The focus strategy could either be cost-focus or differentiation-focus for its target market. Cost-focus represent provide product at lower cost to target market where differentiation means meeting the special needs of customers. The different types of differentiation involve marketing differentiation, quality differentiation, innovation differentiation and service differentiation. The limitation of focus strategy is that it does not offer low-cost or differentiation in the whole industry but only achieves competitive advantage in narrow segment market (Mostaghel et al., 2015).
Salavou (2015) stated that company pursing multiple competitive strategy but fail to excel in any of them is known as ‘stuck in the middle’. The problem associated with stuck in the middle approach represent that company have no competitive advantage when compare with competitors pursing any one of strategy. For example, if company pursing differentiation approach and it could compromise the quality of product if it tries to reduce cost. Porter argued that to achieve success in the market over the long-term, it should purse one competitive strategy.
Furthermore, Hansen (2015) added that to achieve success in each of segment, a company must create separate business. The two risks associated with pursing generic strategies are failing to attain specific strategy and secondly, competitive advantage achieved by the company erodes over time. This situation is known as stuck in the middle and firm fails to set direction and poor performance.
The table below summarise the risk associated with competitive strategy.
Corporate level strategy defines how business set and manages the direction of whole business whereas business level strategy defines how to compete in particular market. Therefore, to achieve alignment and interaction, each strategic business units (SBU) craft own strategy and managers should develop effective way to alignment SBU objective with overall corporate strategy (Grant, 2016).
The three important elements which align the corporate and business strategy are centralisation, coordination and standardisation. The centralisation improves the performance of company through efficient and effective allocation of resources among the SBU. The coordination is control and interaction between the departments and enables the ability of organisation to perform as one unit. Finally, standardisation involves optimisation of resources and activities (Harmon, 2014; Abraham, 2013).
The existence of relationships among the businesses of a related diversified firm will not necessarily result in the creation of synergies and economies of scope. In order for firms to achieve economies of scope when pursuing related diversification, it is necessary for business units to cooperate with each other. The ability to redeploy resources from one business unit to another depends on two dimensions of relatedness within a corporation: operational relatedness and corporate relatedness .Operational relatedness exists within a corporation when business units are able to share activities among themselves (Tanwar, 2013).
When skills and knowledge are the resources shared across business units, then corporate relatedness exists. Corporations that pursue a related diversification strategy tend to build on the aforementioned two dimensions of relatedness in their growth. Subsequently, this allows corporations with related diversification to better respond to the needs of their business units and to economize on the costs of developing skills and on the time required to effectively respond to those needs. Pursuing related diversification is often supported by capabilities that exist within a firm’s core businesses (Baroto, Abdullah and Wan, 2012).
Roth, Schweiger and Morrison (2011) stated that operational strategy provides plans for the activities and function of organisation in order to effectively use the resources of organisation. It enclosed the policies as well as plans which support the business strategy of business. Operational strategy is concerned with deployment of resources and supports the overall corporate strategy of company.
The elements involves in the operational strategy are equipment, quality, employee, finance and marketing functions of business. It is important that operational and business strategy must be aligned to achieve the corporate strategy. The figure below enclosed the relationship between business strategy and functional strategy of business (Nahmias and Cheng, 2009).
To effectively align the business and operational strategy, it is important company defines it competitive priorities to achieve the objectives of company. The four competitive priorities are cost, quality, flexibility and time. The cost priority involves selling the product at lowest cost in the whole industry. The focus is on cost control and increases efficiency of the business of business. An organisation contending on cost need to strengthen operations capacity must concentrate principally on cutting costs, for example, costs of work, materials, and offices (Krajewski et al., 2011).
Organisations that contend taking into account cost examine their operations framework painstakingly to dispense with all waste. They may offer additional preparation to representatives to augment their efficiency and minimise scrap. Additionally, they may put resources into computerization with a specific end goal to expand profitability. By and large, organisations that contend in view of cost offer a thin scope of items and item includes, take into consideration little customization, and have an operations procedure that is intended to be as productive as could be allowed.
This approach supports the cost leadership competitive strategy of business. The quality priority focuses on designing and delivering products of high quality to the customer. The two construct for the quality is effect design and second is improved the process (Harrison and John, 2013).
An organisation that competes on actualizes quality in each range of the relationship. One of the primary perspectives that should be tended to is item plan quality, which includes ensuring the item meets the prerequisites of the client. A second viewpoint is procedure quality, which manages planning a procedure to create blunder free items. This incorporates concentrating on hardware, specialists, materials, and each other part of the operation to ensure it works the way it should.
Organisation that contend on quality need to address both of these issues: the item should be intended to address client issues, and the procedure must create the item precisely as it is planned. This approach supports the cost leadership competitive strategy of business (Enders, 2012; Brennan and Vecchi, 2016).
Time competitive priority is critical in today’s competitive world and delivers the product to the customer in time is important for the strong performance of business. The availability of product to the customer in a timely manner enables the company to focus wider segment of market. Time as competitive priority involves the issues such as deliver the product and service to the customer on time. For example, the availability of product in the supermarket elaborates the time matter. Moreover, the availability of company to complete order in shortest possible time and deliver on time allows creating competitive advantage for the company (Grewal et al., 2016).
The flexibility supports the business strategy through adapting to changing customer requirement and business. Company ability to embrace the change facilitates the emergent strategy in an organisation. The flexibility of firm embraces two dimensions constructs which are offering wide range of products and services to customers and quickly evaluate the product portfolio to offer product and services which are required and demanded by the customers. Flexibility enables the company to offer better customer services through offering product and service valued by the customers. To quickly adapt to changing demand is known as volume flexibility and flexibility offers quick advantage compare to cost which take time to implement (Cetinkaya et al., 2011).
Strategy implementation involves the action of managers to put a strategy in action. Implementation is the ongoing execution of strategy and measuring progress to achieve target results. The performance of firms influences the performance of company through measuring results and achieving target results. Strategic planning is not the linear process and implementation completes the cycle. The implementation phase evolves the action plans which bring strategy to life add create tangible value for the companies (Richardson and Richardson, 2016).
Miller (2002) defines that value of the strategic decision realised through effective implementation. The poor performance of the firm is stem in the lack of effective strategy execution rather planning only. The barrier to poor implementation of the strategy is leadership, communication and systems and result from poor performance of the company.
Kazmi (2006) added that implementation of the strategy is the complex phase and important for superior performance. Empirical literature highlights the strong positive relationship between the strategy implementation and performance of firm through realising the value proposition embeds into plans and realised the benefits.
Strategic implementation is an important notion and without effective implementation a superior strategy is useless. Implementation of strategy is complex task and strategies planned or emerged required decisions and actions to achieve the outcome. The important consideration for planned and emergent strategies is the effect the implementation through communication, enacted and interpretation. Therefore, implementation of the strategy involves alignment of organisation resources and employee motivation to achieve the objectives of the firm (Verweire, 2014).
The rapid changes in external environment represent complex and unpredictable changes and to tackle these changes significant of amount of time spent on strategy formulation. The environment changes have influenced the structure and operations of companies resulting in modular forms, change in the power structure and decentralisation. Thus, in the constantly changing environment and fierce completion makes strategy implementation a crucial element of strategic success (Hussey, 2007).
According to Daft (2010) organisation performance is known as the ability of organisation to deploy its resources in efficient manner to achieve objectives of organisation. In other words, performance evolves the way in which objectives are translated into outcomes. Performance of company is critical area in today’s competitive world and it is defined as ability of company to satisfy the need and desire of internal and external stakeholders.
Financial performance measures have related to its failure to predict future firm performance and thus, other dimension of performance is important to measure. The performance of firm is multi-dimensional construct and two performance measure selected for this study are business and financial performance (Faden, 2013).
The performance of firm is measured through both financial and non-financial measure. The financial measure is used to compare the performance of firm overtime and used for comparison purpose but does not have absolute value. On the other hand, non-financial measures are not enclosed in the chart of account and subjective in nature such as customer satisfaction and quality of products.
For this study, to evaluate the impact of strategy on the performance, there are types of performance criteria are selected which are business performance, financial performance and operational performance (Hyotylainen, 2014).
Taticchi (2010) explained that business performance is measured by the firm response to the external environment. The business performance is good if there is demand for the product and service of company. The business performance measured through market related variables such as growth, market share, product development and diversification.
The business performance is two dimensional construct which are related to existing business such as growth and market share. The second perspective is related to future dimension of company such as product development and diversification. The competiveness of firm is which includes price, flexibility, quality, delivery and service (Hoerl and Snee, 2012).
The organisation performance is measure and evaluated into two perspectives which are financial and non-financial performance. The financial performance involves various dimensions such as profitability, Return on Assets (ROA) and market share of firm. The non-financial performance embraces range of variables such as quality, employee satisfaction and reputation. The objective of business performance is to recognize opportunities and comprehend actions (Hershman and Mazero, 2008).
They can be execution issues or ranges of the business that perform amazingly well and can be utilized. Financial performance is a subjective measure of how well a firm can utilize resources from its essential method of business and produce revenues. The financial performance of firm includes sales, profitability, Return on Asset (ROA) and Return on sales. Moreover, financial performance which is generally reported through annual and quarterly reports consists of such indicators as return on investments (ROI) (Faden, 2013).
Operational performance of firm includes element which are closely related to internal and external stakeholders. An organization characterizes its corporate technique and after that recognizes the operational execution goals it must meet to accomplish the procedure. Next, the organization characterizes the measures it will use to figure out whether execution destinations are met. The organization then arranges its working surroundings to achieve one or a greater amount of five the operational execution goals: quality, speed, flexibility, adaptability and cost.
For example, internal stakeholder’s measure of performance includes employee satisfaction and product quality. The performance of firm is two dimensional construct which include those how create quality and those how experience and reward for quality (Grewal et al., 2016).
In this section, linkage of strategy and performance is discussed and elaborated. The empirical literature shows that firms with consistent strategy outperform the firm without an effective strategy. Bisbe and Malagueno (2012) discuss that competitive position of firm leads to sustain performance of the firm. The corporate strategy pursued has also been discussed as an influencing factor on business unit performance. To highlight the performance and success of the firm in given market, the strategy of the firm must meet three conditions.
The first condition is that company set consistent goals and policies to mark its position in the market. The second condition is that goals and policies must align the internal strength and weakness of company with the external environment (opportunities and threats). The third important condition is the strategy of the firm concerned with the exploitation of distinctive competencies. If the strategy of company meets three conditions then consistent strategy deliver good performance (Jeffrey and Fiedler, 2015).
Juntunen (2015) ananlysed that firms pursuing constrained diversification strategies (dominant constrained and related constrained) and those pursuing less constrained diversification strategies (e.g., related linked, single business, unrelated businesses). His findings showed that firms pursuing more constrained diversification strategies outperformed. Moreover, the performance of firm linked with the competitive strategy of porter competitive strategy.
The low-cost approach emphasises on cost control, distribution system and technical skills. Companies following related diversification achieved significantly higher performance over extended periods of time than unrelated diversified corporations. However, to achieve this higher level of performance, the differentiator factors include coordination among functional area, product engineering, marketing and product quality (Grant, 2016).
Dean et al (2008) added that strategies of companies change over time because of dynamic and turbulent business environment and embracing changing business environment increase performance of business. The integration of operations at the business unit level and limiting the autonomy of business units has been found to result in poor performance and inefficiency of the internal capital market in unrelated diversified firms.
The performance of the firm is linked with strategy formulation process and feedback mechanism is linked with performance to strategy through improving decision-making and control. The specific strategies such as quality management and human resource are likely to improve control and management of firm activities. This study explores the relationship between the different level of strategy and performance of the firm (Grewal et al., 2016).
This chapter of study enclosed the research methodology used for this study to achieve the objective of this study. The success of research depends upon design of research and this section of study discusses and evaluates the research approach selected to answer the research question of study.
For this study, mix methodology is used to explore the impact of strategy on the performance of Tesco. Mix methodology is used to investigate the different level of strategies in Tesco and how it impacts the performance of company. For this study, both qualitative and quantitative secondary data is collected to investigate the strategy formulation and implementation at both corporate and business level and how strategy influences the performance of various business unit of Tesco.
The multiple sources of secondary data is analysed to present holistic perspective on relationship between strategy and performance of Tesco. The qualitative approach in this context, would allow investigating the different level of strategy and quantitative approach is used to analyse the performance of Tesco. Mix methodology allows integrating and investigating the strategy and performance of Tesco using structured and flexibility and examines the causal relationship among the variables (Creswell, 2013).
This study involves both qualitative and quantitative research method to answer the research question. The advantage of applying the mix methodology to this study is that it allows investigating and understanding process of strategy in Tesco as well as evaluating the impact on the performance. According to Creswell (2013), mix methodology enables the researcher to meet and match the need and purpose of study. The mix methodology facilitates the researcher to identify the unexpected scenarios and themes through exploring the multiple events which otherwise might not possible to explore.
For this study mix methodology is useful to understand the two-dimensional construct in terms of level of strategy process in Tesco as well as evaluate the performance of company. This study aims to investigate the strategy influence on the performance of Tesco through two dimensional approaches. First, study evaluates the relationship between the strategic planning and performance and secondly, it analyse how implementation contributes towards the performance of Tesco.
Therefore, qualitative approach allows exploring the strategy context whereas quantitative approach allows evaluating the performance of Tesco. The usefulness of quantitative research is that it facilitates to present the analysis whereas results are better interpreted using the qualitative approach. The examination of corporate and business level strategy and consequently effect on the performance of Tesco is better evaluated using the mix methodology (Spitzlinger, 2010).
According to Mukherji and Albon (2009) quantitative research is associated with positivist approach whereas qualitative approach is associated with phenomenological philosophy.
Maykut and Morehouse (2002) elaborated the usefulness of positivist approach is that it enables the researcher to explore and determine the facts of the social event. It is widely used in the social sciences to identify the facts and determine the causes associated with the specific problem.
Positivist approach involves highly structured methodology and approach to develop and understanding of problem and researcher can used numerical data to answer the research question. The advantage of positivist approach is that it focuses on the causes of the phenomenon but pays less attention to the subjective nature of problem (Mackenzie, 2010). It explores the problem and scenario in terms of occurrence and provide basis to explain the occurrence of event. The interpretation and explanation allows to links and relationship among the variables because it enable the researcher to explore the problem independent experience and knowledge of people.
To summarise, positivist approach uses the logical reasoning, objectivity and rigid structure to answer the research problem (Maxwell, 2012).
Smith, Flowers and Larkin (2009) discuss that phenomenology is concerned with exploring the human interaction in particular social context and studying the experiences and perception of people involved in the social context.
Phenomenological approach explains the people experience present in the social context and interpret the social reality involve in the situation. It allows developing an understanding of the real world and developing an understanding of real life scenario through researcher interaction with people in social context and investigation the experiences and observation of people directly related to event. In Phenomenological approach, there are two ways to explore the experiences of people. Firstly, it involves direct observation and discussion with people and secondly, indirect approach such observing the actions and activities of the people exist in the social setting (Edgar, 2004).
The application of positivist is difficult in real world but Phenomenology offers socially constructive perspective and enables the researcher to examine the phenomenon when it is difficult for researcher separate itself from the situation. In positivist approach, the belief are that world is objective and researcher is independent of phenomenon. Moreover, it embraces the deductive approach and focus on the facts as well as allows to measure the larger data select.
For this study, positivist approach would allow examining the performance using the numerical data from the chart of accounts of Tesco. On the other hand, Phenomenology is useful to study the perception, experience and behaviour of human in social context. In Phenomenology context, world is subjective and observer is party of the situation observed. Moreover, it employs the inductive approach to construct model and focus on the meaning of event. It is useful to observe small sample and develop understanding overtime. For this study, Phenomenology approach is useful to explore and understands the strategy content and context in Tesco using the qualitative secondary data.
According to Creswell (2013), quantitative research is useful to examine the positivist factors and thus allow examining the effect and causes of problem through examining the specific variables. The performance variable in this study is better explored using the quantitative data.
On the other hand, qualitative approach is useful to explore and present finding based on the constructivism perspective. This allows exploring the strategy management Tesco and linking the strategy to the performance of the company. The qualitative secondary data for this study would allow exploring wide perspective of strategy process and context through exploring multiple sources of secondary data (Miller and Holstein, 2009)
The fundamental difference between the qualitative and quantitative research is the methodological approach and need of researcher in terms of suitability to achieve the objective of research. According to Maxwell (2012), qualitative research is useful to understand and focus on the problem to develop meaning from the social context. Moreover, qualitative research emphasises on the importance of relationship through exploring the relationship among the variables. It is useful in context when researcher cannot separate itself from the situation. On the other hand, quantitative research enables the researcher to test the casual relationship among the variables and explore the concept, characteristic and description of things (Maxwell, 2012).
The advantage of Qualitative research is that it enables the direction observation of problem and investigation factors such as metaphor, description and distinctness of the problem. The flexibility offered by the qualitative research enable the researcher to develop understanding of the scenario using wide data scenario in less-time and cost effective manner. Qualitative approach allows summarising the multiple sources of information in short time and bring clarity for the situation and analyse the results (Denzin and Lincoln, 2011).
Consequently, the strategy process and level are better explored and how its effect the performance are better understood using the qualitative approach. On the other hand, quantitative approach offers analytical approach to explore the problem and confirm the hypothesis. It uses rigid structure and style to explore the problem and research cannot influence the finding of study. Quantitative approach uses the numerical data and for this study data from the chart of accounts of Tesco is collected to investigate the performance of company. The benefits of both approach is that it validate the results as well as researcher can interpret the results in effective manner (Tracy, 2012).
Mix research method allows capturing the properties and characteristic of both quantitative and qualitative research method. In case of Tesco, mix approach is useful to explore and generalise the strategy process and level from wider context which allows generalising the data from larger population and examining relationship between the strategy and performance using the rigid framework.
Mix methodology for this study allows studying multiple phenomena and variables in wider context. Qualitative approach allows examining the strategy content and context whereas quantitative approach examine the performance and thus, supporting the overall aim of this study. The table below summarise the usefulness as well as application of three approaches (Creswell, 2013).
Bryman and Bell (2007) stated that it is imperative to understand the logical reasoning associated with research. Research should elaborated the whether inductive or deductive approach is used. Inductive approach is useful to explore the multiple sources of information and present theory. It enables the researcher to generalise the information using multiple sources of information and narrow down the finding to present theory.
On the other hand, deductive approach is used to test the hypothesis and confirm the relationship among the specific variables. Inductive approach is used study the open-end phenomenon whereas deductive approach is used to confirm the hypothesis (Denzin and Lincoln, 2011).
Exactly when researcher first begins to open up any new line of enquiry, there will be no important theories available from which to hypothesis for testing. For this situation, the theories are tight down towards a particular point. For this study, in the light of the inductive methodology which anticipates the circumstance and elaborate extensive connection is useful to sum up a wider context to narrow down perspective.
Inductive approach is used to analyse the strategy content and process in Tesco and deductive approach is used to examine the performance using the numerical data (Mackenzie, 2010).
Hesse-Biber and Leavy (2013) discuss that constructionism sees reality in socially developed in defined manner. The constructionism setting exists in the experience and perception of the individual and translates the part of scenario to comprehend and remake the circumstance to give important reason and accomplish desired result. Furthermore, constructionism is building information about the truth yet it is not development the reality. In addition, in constructionism approach both subjects and involves building information around a reality. The experiences and knowledge of multiple individuals is observed and develop distinctive importance for the same social phenomena (Brace, 2013).
Consequently, constructionism is related to with concentrate how diverse partners see a circumstance, specifically, social setting when the study the complex and multi-dimensional scope. In this manner, phenomenology and constructionism is connected to some degree as both methodologies lead to comprehension the circumstance than close the outcomes. For this study, constructionism enables to explore the strategy content and context at Tesco and interpret the process to present the holistic perspective on the strategy influence on the performance of Tesco (Denzin and Lincoln, 2011).
Blaikie (2009) highlighted that social event is more consider as built and translated to give meaning and highlight significance and also conduct of individuals in the light of research. Subsequently, understanding is a social context in which researcher cannot separate him from the circumstance. Interpretivism is viewed as that world is real world scenario are complex and attempt to build the reality. In this manner, it is critical to comprehend the truth behind the law. The objective of the interpretive methodology is to comprehension significance of the social connection and analyse the perspective of the individuals who experience it.
In any case, it is essential that the scientist ought to interpret the social event, build up a comprehension of the circumstance, and in addition uncover the discovering, which are summarized in the conduct of the general population (Tracy, 2012).
Interpretivism highlights the subjective importance of a circumstance, which highlight inspires the activities of the general population. By and by, there is one and only reality in this present reality however analyst comprehends the matter from an alternate circumstance. The analysis of strategy context for the Tesco offers an insight on the practices of companies and develops the scenario through linking the strategy with performance to interpret the meaning and convert them into results (Flick, 2009).
Bernard (2012) stated that data collection is important phase of research and reliability and validity of research is depending upon the data collected for study. For research involves the secondary data, it is important that researcher ensures the reliability of data to achieve the objective of research.
Secondary data is a data which already exist and collected for other purposes. In this research, the key sources of secondary are case studies, book, journals and official publication of Tesco. Secondary data is used to achieve the objectives of this study and no primary data is collected to achieve the objectives of study.
Goldkuhl (2012) suggested that secondary data analysis involves the technique and process to analyse and interpret the existing data from the secondary sources to answer the research question. Secondary data exists independent of the research and collected for other purposes. Moreover, secondary data analysis is critical to exploratory researches and it involves analysing the information collected by someone else. The advantage of secondary data is that it enable the researcher to analyse the wide range of information and develop holistic perspective in short-time and cost-effective manner (Camfield, 2014).
Secondary data analysis is useful to achieve the research objectives which are different from the original research questions. The important of secondary data analysis is the narratives offered from the data which allows developing better insight and gaining valuable insight of information (Cox et al., 2011).
Secondary data allows analysing the problem in wider context using the multiple sources of information in timely manner. Secondary data analysis is useful to consolidate the information from number of sources and present information in synthesise manner to answer the research question (Drummond and Embree, 2013).
However, it is important for the researcher during the secondary data analysis is that secondary and primary research objective should be balanced. For this study, the value of secondary data analysis is two folded. Firstly, qualitative secondary data offers insight on the level and context of strategy in Tesco and secondly, quantitative data allows exploring the performance of Tesco using the financial from the chart of accounts of company (Redmon, Mawhinney and Johnson, 2013).
Document analysis is useful technique and approach to analyse the secondary data sources and enable the researcher to evaluate the information from multiple information sources. It is useful to explore and analyse the documents which offers different perspective and enable the researcher to achieve the objective of study.
The document analysis involves exploring the sources of information which exist independent of study and researcher can combine multiple sources of information to develop holistic perspective. The usefulness of document analysis is that researcher can answer the research question in non-reactive as well as unbiased manner in timely manner (Wrenn, Stevens and Loudon, 2013).
Blatter and Haverland (2012) added that secondary data research, the issue of informed consent is no applicable but fidelity and confidently is relevant to secondary data researches. It is important that researcher does not violate the agreement the participant of the original research through comparing and re-using the information. The ethical problems rise in the secondary data research when research analyse and compare multiple sources of information.
However, document analysis approach does not violate the privacy and confidently issues associated with this research. During the secondary research, it is important that researcher do not violate privacy and confidentiality of original research participants as well as researcher stick to ethical and moral principles of research process. Moreover, researcher should avoid the personal bias and no personal information attached should be disclosed during the research process (Hackett, 2015).
Sarantakos (2012) added that triangulation involves important process to analyse multiple sources of information and strength the finding of study through developing holistic perspective for research problem. The multiple sources of information strength the finding and develop confidence using number of analytical tool and techniques. Triangulation allows confirming the proposition using the multiple measurement methods and resulting reduce the uncertainty associated with research.
In behaviour studies, triangulation is particular useful tool to develop confidence in the finding of study through increased dependability of results. In this study, the personal bias of researcher is managed through integrating the multiple sources of information and analytical tools which reduce the methodological bias as well.
For this research, case studies, books and journals are used to analyse the strategy context in Tesco and increase confidence as well as validate the research (Moore, Parker and Rosenstand, 2011).
This chapter of study presents the finding of study through analysing the impact of strategy on the performance of Tesco. The findings are discussed through the collaborative approach and strategy influence on performance is correlated manner.
Triangulation approach allows analysing and evaluating both qualitative and quantitative secondary data and present holistic perspective for the strategy influence on the performance of Tesco. The strategy of Tesco is to focus on the customer and create value through volume expansion and geographical expansion.
According to the strategic report of Tesco, ‘the long-term strategy of the company is designed to achieve growth and strength the core business to achieve expansion in the local and international market.
Corporate strategy of company aims to deliver strong performance and sustain competitive advantage through the focus on food and non-food retailing, new distribution channels, unrelated diversification and expanding to new global markets. The long-term strategy of the company is based on perspectives which are enclosed in the table below.
Tesco has created and develop number of new business as part of growth strategy (rational planning) and consistently deliver profitability and maintain competitive advantage. The focus of company is to become international retailer, expand its core business and develop retailing service such as Tesco insurance, finance and telecom. Company has strong business and financial performance with expansion of business to Korea and India as well as increase market share in non-food segments.
Tesco in the UK has used diversification strategy and its affect its business as well as financial performance. The diversification in retail business is similar to the core business of company which is food retailing. Company has diversified into non-food retailing as well as started number of business units such as Tesco superstores, Tesco extra hypermarket and Tesco convenience store. Company corporate strategy purse both related and unrelated diversification to launch number of products as well as expand geographically.
Tesco has used volume expansion strategy in the UK and sell number of product range throughout the UK. In addition, Tesco has opened number of international stores in Europe as well as used merger and acquisition to achieve its growth. Corporate decisions are taken with perspective of achieving economies of scope and scale through managing similar and identical assortments. Synergies through food and non-food retailing add value at corporate level and deliver sustainable competitive advantage.
However, with increase unrelated diversification the profitability decreases. Corporate level strategy purse by Tesco has delivered profitability as well as minimise the risk through managing profit variability. The annual report of Tesco shows that company has attained sales growth and objective of corporate marketing department is to maximisation of profit to achieve sustainable competitive advantage and evaluate retail portfolio configuration.
The diversification strategy of Tesco allows to evaluate both food and non-food strategy of company affect the cost of company overtime. The diversification strategy into food and non-food retailing increase assortment diversification of Tesco and increase the profitability of company. Tesco as multiunit firms achieve synergies by pooling resources and value create at corporate level deliver better return when compared single unit approach.
The retail industry is classified as multiunit firms and Tesco operating in multiple markets have a number of distinct units. Retailing industry belongs to service sector and diversification with-in retailing enables the start new business units. For example, Tesco UK own the large market share and pursued vertical integration over the years. In addition, Tesco used geographical expansion strategy to enter the US market under the new format which is ‘Fresh and Easy’.
Tesco competes in the UK using the portfolio of related retail diversification. The retail portfolio of Tesco enables the company to meet the demand and shopping situation of the range of customer using superstore, hypermarket and convenience market. Corporate strategy of Tesco is based on knowledge development and diversify related format and establish operation and SBU.
Tesco core business is food retailing and company achieve volume expansion through seafood, bakery and non-food items. Company allocate 40% of the store space for grocery items as well as integrated e-commerce in the value chain activities. In 2008, Tesco opened Somerfield stores in the Scotland and expand its existing product within the UK. To response to competitors, Tesco decides to open convenience stores which accounted for 20% of the total grocery shopping in the UK.
The cost priority involves selling the product at lowest cost in the whole industry. The focus is on cost control and increases efficiency of the business. Corporate strategy of Tesco has enabled to achieve product development and diversification with existing resources and unit portfolio has increased over time through diversification activities.
Tesco has focused on the related diversification and develop new units which are closely related to the core business of retailing of the company. The strategic alignment and sharing of resources across SBU has enabled the strategic fit and outperform the competition. The interrelationship and coordination among the SBU have enabled the value creation through corporate strategy by achieving economies of scope and scale and resulting deliver superior business performance.
Porter discuss the interrelationship among the business units and value creation using economies of scope and scope using customer knowledge, marketing capabilities and advertising. Tesco pursed cost-leadership approach through marketing the discount items to attract the customers. Cost leadership approach has allowed Tesco to increase effectiveness across related formats and reaching customer with similar needs. Tesco has achieved cost leadership through reducing cost and increase efficiency through physical environment of store such as shelf space, layout and assortment of products. This approach has enabled the company to share capabilities and resources across own SBU portfolio.
Cost leadership approach has enabled the company to achieve both cost and sales synergy through related diversification. Tesco compete on cost need to strengthen operations capacity through concentrate principally on cutting costs, for example, costs of work, materials, and offices. Organisations that contend taking into account cost examine their operations framework. The influence of external environment on the strategy of Tesco marks the changes in the external environment of business.
For example, customer prefer to shopping in the local market, demand for healthy eating and fresh food has forced the company to adapt new SBU and purse differentiation to reach the new segment of market.
In 2010, the CEO of Tesco Sir Terry stepped down after 14 years of growth and expansion of business. The influence of leadership on corporate strategy of Tesco had resulted in an expansion of in Turkey, Poland, Japan and the US. Moreover, company enter the business of mobile phones, insurance, banking and launched customer loyalty card scheme. The strategic focus of the company is based three dimensions which are customers, a market leader in grocery segment and achieve long-term growth in non-food items.
Moreover, the CEO of the company added the plans to invest $1 billion in starting hyper market format to response to changing needs, life style and shopping of customers. A corporate strategy that not all skills can be equally transferred to business units and skills and intangible resources are considered is required for deployment. For instance, marketing and customer skills have been found to be more flexible to transfer, and to yield better results when a firm pursues some degree of diversification.
The shift in customer preferences from the weekly towards the convenience shopping has emerged the new pattern of strategy for Tesco because customer prefers to shop in local stores rather visiting supermarkets. The problem associated with Tesco corporate strategy is a lack of product development approach.
Tesco unrelated diversification has allowed the company to meet unique need and behaviour of dissimilar customers. Corporate strategy involves the choice that firms make to pursue diversification into related product markets or into product markets that are unrelated to one another. However, this has minimised the opportunity for Tesco to exploit customer knowledge and mixing customer through unrelated units decrease the performance of firm.
Related diversification has often been considered a corporate strategy that enables firms to better exploit a core set of capabilities in order to achieve higher performance through creating economies of scope. Corporate strategy of Tesco has not able to leverage economies of scale and decrease the economies of scope across the unrelated business units of company. Time competitive priority is critical in today’s competitive world and delivers the product to the customer in time is important for the strong performance of business. The availability of product to the customer in a timely manner enables the company to focus wider segment of market.
Firms that pursue related diversification, firms that have diversified into unrelated businesses do not seek to benefit from the economies of scope that are created as a result of interrelationships among business units. For example, convenience store opened in the city centre requires delivering small quantities whereas large store requires large quantities. Therefore, it effect operational effectiveness (distribution efficiency) and made it difficult across the unrelated SBU. Tesco has significant unrelated diversification such as clothing, electronic and household items.
Unrelated diversified firms, similar to holding companies, have been found to give considerable autonomy to their business units, avoid “horizontal strategies” that seek coordination between business units, and refrain from direct intervention. Instead, they mostly focus their attention on the allocation of financial resources among their business units in more efficient ways. The cost of coordination and control has increased for Tesco and ‘cost of learning’ new customers, operations and competition has reduced the financial performance of company. In 2009, Tesco launched the ‘Tesco bank’ in joint with royal bank of Scotland and offered Tesco finance.
Economies of governance are often created as a result of unrelated diversified firms’ access to financial and other liquid assets, which enables them to allocate financial resources more efficiently across business units and to ensure that their performances meet those of their competition in their relevant product markets. Therefore, the more successful unrelated diversified firms are those that focus their attention on creating and operating internal capital markets and the efficient allocation of capital to their business units.
Corporate strategy of Tesco has enabled the international expansion and in 2007, expands its business to the US and opened 199 stores. Nevertheless, Tesco withdraws from the US with the loss of £1.2 billion because the customer was failed to embrace the shopping style and self-service checkouts. Firms pursue diversification to increase performance through simultaneous operation in multiple product or service markets.
The flexibility of firm embraces two dimensions constructs which are offering wide range of products and services to customers and quickly evaluate the product portfolio to offer product and services which are required and demanded by the customers. Flexibility enables the company to offer better customer services through offering product and service valued by the customers. The impact of diversification on profitability Firms pursue diversification to increase performance through simultaneous operation in multiple product or service markets.
Generally, diversification research has fallen into one of two streams, industrial organisation and strategic management; the latter focuses mostly on the impact of diversification on profitability. The store opened in the US named ‘Fresh and Easy’ presented confusion among the US because a culture of the large supermarket in the US.
The confuse brand position of Tesco resulted in the failure of stores in the US. The competitive strategy of the company was to sale the essential grocery items at lower prices. However, the store in the US target the upper middle class in the US as well as the marketing strategies were design to influence shopper how are less sensitive to pricing.
Tesco deployment of resources has allowed the company to implement capabilities and synergies. Organisational capabilities embedded in the processes enable to manage the complex problems and achieve cost leadership across different units. The strategy of a company based on organisation learning facilitates the product development and improve the business performance of Tesco. The rational planning approach enables the Tesco to share learning across SBU and create products and target new market segments. Tesco pursue cost leadership in border perspective and target the border market through offering the quality product through discounts and promotions.
A strategy of related diversification, tangible resources can more easily be shared than financial assets to support interrelationships between production, sales, marketing, technological, and procurement activities across businesses. Corporate strategy of Tesco enable the integration, coordination, reconfiguration and share best practices across the SBU as well as growth strategy allows creating SBU through increased capabilities of the company.
To evaluate the performance of Tesco quantitative data is collected for the period of eight years from 2007 to 2015. The analysis enables to analyse the firm performance in relation to competition in the industry. To check the reliability of selected variables Cronbach reliability statistics was the performance on the collected data using the SPSS. The table below summarises the result for firm performance and strategy implementation.
The statistics shows that company average profitability over have remained positive and achieved growth over the years. Moreover, table below summarise the result for the strategy and performance using the ANOVA table from the SPSS statistics. The measurement examines the five variables to elaborate the financial and business performance of Tesco.
The score for Cronbach Alpha is 0.7 which validate the reliability of selected variables. The analysis shows that Tesco business and business performance has remained positive in the past and company strategy has positive influence the performance of Tesco. Company strategy has delivered positive result such as sales and business growth as well as diversification of business.
The competitive landscape and external environment have influenced the business model of retail business. The customer prefers to shop locally as well as discount shopper prefers to buy low-cost items. On the hand, an emergence of healthy eating has increased the demand for a premium product and thus, new segments of markets have emerged. There are various explanations behind Tesco’s decrease in money related performance, including outside strengths driving down deals and benefit and inside key business choices.
The UK business sector is failing to meet expectations, driven by the financial downturn, expanding fuel costs, becoming stronger of the top of the line brands and the discounter. Tesco sought after a global development strategy, entering new markets, for example, Tesco keeping money and client knowledge and noteworthy interest in area and property all through the UK.
Tesco built up a ‘wide range’ item strategy, building up range and finest range and presenting an inconceivable cluster of non-sustenance things. This prompts the inquiries: can a basic supply retailer be all things to all individuals. A strategy of interest in hypermarket superstores, goal shops and choice to put resources into away goal shops was seen as essential and hidden issues are in connection with poor performance.
The cost leadership approach in UK food retail industry facilitated by the reduce product range, low operational cost and less capital investment has allowed the retailers to highly discount the items. On the other hand, high quality and premium products offered by the Mark and spencer and Waitrose have to target a narrow segment of the market. The performance of Tesco has declined because of stuck in the middle approach.
The performance of Tesco has significantly declined in 2013 and company had its drop in the profitability in the period of 20 years. The problem for Tesco is that its sales drop was faster than its competitors. Competitor analysis shows that Morrison has sales increase of 2%, ASDA 1% and Sainsbury had the evident increase of 3%. In addition, the company lost the market share to competitors such as Waitrose and Lidl.
The problem with Tesco was stuck in the middle and company lagged behind its major competitors because of pursuing multiple competitive strategies. Tesco stuck in the middle because of pursuing multiple approaches like premium (differentiation) and discounting (cost leadership to achieve the market. In the same period, sales of Waitrose (differentiation) increased by 28% whereas sales (Cost focus) increased by 18%.
The changes in strategy and direction are evident after the decline in business and financial performance of Tesco. The range of actions such as store closures, pricing decisions and international markets is planned and implemented in the UK. The first priority of Tesco is regaining the competitiveness in the UK market. The strong financial and operational performance of the company is the top priority through increasing the sales and pursuing single competitive approach. The product price and availability are focused on increasing the operational performance.
Tesco strategy is designed and develops to improve the relationship with suppliers and customers through stable price and redlining the product range. The focus of the new strategy is to achieve competitiveness through increased efficiency and removing uncertainty in volumes. The company is pursuing new pricing approach (cost leadership) to attract the customer through discounting the premium brands. For example, the company cut the price of 300 products by 25% to boost sales.
Cost leadership approach has enabled the company to achieve both cost and sales synergy through related diversification. The influence of external environment on the strategy of Tesco marks the changes in the external environment of business. Moreover, Tesco is focused on building the staff morale and customer focus to implement the new corporate strategy for changing management structure. The company is aimed to reduce the head-office expenses by 35% and focus on the non-food retailing items. The restricting of Tesco through merging the Metro, express and one stop has increased the profitability and bring innovation to the business.
Corporate direction is to consolidate the number of SBU and achieve synergies to deliver better performance. Moreover, the company is tempted to reshape its portfolio for stores and plan to invest £1 billion in new stores while closing number of express and metro store format. The aim is to achieve cost leadership and competitive in the light emerging trend in business. The introduction of new technologies like the state of art check-out allows providing better customer experience. Moreover, the company is planning to invest in the new international markets despite the retreat from the China and expanding to market.
The aim of this study was investigate the strategy influence on the performance of Tesco. The objective of study was to appraise different level of strategies and consequently evaluate the influence on the business and financial performance of Tesco. To achieve the objective of study, mix methodology was used to explore the relationship between strategy and performance.
For this study, both qualitative and quantitative secondary data is collected to investigate the strategy formulation and implementation at both corporate and business level and how strategy influences the performance of various business unit of Tesco. The long-term strategy of Tesco aims to deliver strong performance and sustain competitive advantage through the focus on food and non-food retailing, new distribution channels, unrelated diversification and expanding to new global markets.
Tesco has remained profitable over the years and has delivered consistent growth over the years. Corporate growth is achieved through retail portfolio of Tesco enables the company to meet the demand and shopping situation of the range of customer using superstore, hypermarket and convenience market.
Company has pursued diversification strategy and expand in both related and unrelated segments of markets. In the light Chandler framework for corporate strategy, Tesco in the past has used volume expansion strategy in the UK and sell number of product range throughout the UK. In addition, Tesco pursued geographical expansion and opened number of international stores in Europe and US.
Corporate decision has enabled the company to realise to achieve synergies through economies of scale and scope which has allowed adding value through grocery and non-food items. Tesco business performance has remained positive through strategy of growth and diversification. Nevertheless, increased unrelated diversification the profitability decreases because of increase cost base.
Nevertheless, Tesco as multiunit firms achieve synergies by pooling resources and value create at corporate level deliver better return when compared single unit approach. To remain competitive in the local market, flexibility of Tesco has allowed open convenience stores which accounted for 20% of the total grocery shopping in the UK.
The competitive strategy of Tesco is based on cost leadership and company sell product at discount. The cost leadership achieve through reducing cost and increase efficiency through physical environment of store such as shelf space, layout and assortment of products. Nevertheless, company competiveness has affect customer prefer to shopping in the local market, demand for healthy eating and fresh food has forced the company to adapt new SBU and purse differentiation to reach the new segment of market.
This has result in creation of new SBU and increase the cost of business. However, company has remained profitable and deliver constant strong financial and business performance. Tesco has pursed unrelated diversification through entering the business of mobile phones, insurance, banking and launched customer loyalty card scheme. However, lack of product development and focus on the volume expansion has limited the innovation in the company. The opportunity for Tesco to exploit customer knowledge and mixing customer through unrelated units decrease the performance of firm.
Corporate strategy of Tesco embrace to become international retailer and company achieved the international expansion and in 2007, expands its business to the US and opened 199 stores as well as it enter the China. The impact of diversification on profitability Firms pursue diversification to increase performance through simultaneous operation in multiple product and reduce the financial performance of company. The expansion delivers poor performance Tesco withdraws from the US with the loss of £1.2 billion because the customer was failed to embrace the shopping style in the US.
The strategy of a company based on organisation learning facilitates the product development and improve the business performance of Tesco. The rational planning approach enables the Tesco to share learning across SBU and create products and target new market segments. Corporate strategy of Tesco enable the integration, coordination, reconfiguration and share best practices across the SBU as well as growth strategy allows creating SBU through increased capabilities of the company.
The statistics shows that business and financial has remained positive over the years through increased profitability, ROA and diversification and thus, strategy has resulted in positive performance of Tesco.
However, corporate and business strategy of Tesco has become problem in 2013. Company competitive strategy has become problem to response to competitors. Tesco was stuck in the middle in attempt to achieve the market and increase business performance. Tesco was stuck in the middle and company lagged behind its major competitors because of pursuing multiple competitive strategies. Company pursued both cost leadership and differentiation approach to response to competitors which resulted in decline in the sales as well as loss market share.
Tesco competitive strategy to target both value shoppers as well as offer premium product has resulted in decline and market share to both value retailers (Lidi) and premium food retailer (Waitrose). The business and financial performance of Tesco has declined because of stuck in the middle approach. Corporate direction is to consolidate the number of SBU and achieve synergies to deliver better performance. Corporate decision of Tesco plans range of actions such as store closures, pricing decisions and international markets is planned and implemented in the UK. The first priority of Tesco is regaining the competitiveness in the UK market. The strong business and operational performance of the company is set to achieve through cost and flexibility as competitive priorities.
There are number of limitation attached to this study which restrict the finding and scope this study. The first limitation associated with this study is size and time associated with this report. The size of report has resulted in presenting limiting perspective on the strategy and performance linkage. Moreover, typologies of strategies are examined in limited perspective because examine the in-depth perspective of strategy formulation in industry context is beyond the scope of this report.
The research attempts to answer the question using the qualitative and quantitative secondary data only. The lack of primary data fails to integrate the recent action and activities of Tesco strategy content and process. In addition, particular qualitative secondary data is not exactly suitable to answer the specific research question of this study. The collection of primary data would have allowed identifying and elaborating recent perspective on strategy in Tesco.
Furthermore, availability of qualitative secondary data is a major challenge and limitation associated with this report. The limit the scope and finding of this study through analysing the fewer perspective and variable on strategy influence on the performance of Tesco.
A reflective journal is useful to understand the learner’s perspective. The skills and knowledge developed from this research as well as the application of theories are analysed from researcher perspective in the reflective journal. To evaluate the skills and learning developed from this research is examined through Kolb learning model. Kolb learning model is based four stages which are getting involved through concentrate experience, reflection and observation, conceptualization and experimentation (putting theory into action). The figure below enclosed the Kolb learning cycle and researcher use the model to explain its learning, experiences and skills during the process of research.
Figure 8: Kolb Learning Cycle
The key skills development from the research is putting theories into action. The concentrate experience for the researcher is applying business strategy to Tesco to analyse and evaluate and strategic context and the process of the company. The researcher has developed experimentation learning through the integration of the thing, watching (reflective observation) and way of doing things (active experimentation) in theory to practical context. Research has improved interpersonal skills as well as management of business reports.
The literature review has improved analysis and evaluation skills, researcher methodology has helped to understand how to respond to a specific problem as well as analysis and the conclusion has enabled the researcher in term of communication skills. The dissertation has developed the skills and capabilities of the researcher in terms of manage reports and problem analysis with in defined timeframe. One of the important learning for the learner is putting theory into action.
The researcher has a keen interest in business and with experience through business degree and as well as management of the family business, the goal was to enhance skills and abilities to manage the long-term vision, planning and management of business (abstract conceptualization). The research has allowed enhancing knowledge, experience and abilities through active experimentation. The researcher has analysed strategic context and a process of Tesco which has allowed to understanding how business planning helps various scenarios of business situation (active experimentation).
The research has developed skills such as business strategic analysis in different scenario and situations. Moreover, specialist knowledge developed for strategy and performance of the business through evaluating the range of strategic options and performance analysis of business by application range of business theories. The understanding for various level and views of strategy has made researcher a ‘Pragmatists leaner’.
The two specific model used in this study are ‘chandler theory for strategy’ and ‘Porter competitive strategy model. The first model is Chandler theory is used to evaluate the corporate strategy concept in an organisation whereas as porter competitive is useful to analyse the business strategy of the company. The strength of Chandler theory is that it was developed from the ‘empirical observation’ rather using the formal model building approach.
Moreover, the root of model is corporate analysis in the light of changing internal and external environment of business. The work of Chandler emphasises on the need of strategy towards the product and market. Moreover, Chandler model integrates the need for diversification and structure in the geographical market. Therefore, Chandler theory is most useful concept to analysis the corporate strategy of Tesco.
The second model is used in this study is ‘Porter competitive strategy’ which is the most useful model to analyse the external environment and develop response for the competitor to achieve the corporate strategy of business. It allows analysing the practical approach of business to response the competitor and thus, evaluating competitiveness of the company.
Furthermore, the usefulness of competitive strategy is that it allows understanding the competitive advantage of firm through formulation of competitive strategy in relation to environment. Therefore, Porter model is useful to analyse the how business strategy achieves the competitive advantage and support the corporate strategy. Therefore, selection of two models has complemented each other to analyse and evaluate the both corporate strategy of Tesco.
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