Case Study Description of Tesco and Ocado: Competing Online Models
The online grocery market in the UK is one of the largest in the world. It has many players, but two of the most dynamic are Tesco and Ocado. These two companies have taken markedly different approaches to executing and fulfilling online grocery orders from customers. Tesco has an extensive network of stores and primarily uses these stores as picking locations to prepare and ship customer orders. Ocado has no retail stores, and uses highly automated distribution centers to prepare and ship customer orders. This case describes the UK online grocery market and the two companies; it invites students to consider the differences in the approaches, in which ways they offer advantages to the company and to customers, and ultimately which one is better suited to the UK online grocery market. Learning objective: The objective of this case to develop an appreciation and understanding of the different benefits, costs and constraints of supply chain distribution models. By contrasting two companies that have very different supply chain approaches to competing in the same market, the case leads students to make connections between a company's supply chain strategy and its customer value proposition.
Swot Analysis of "Tesco and Ocado: Competing Online Models" written by Ralf W. Seifert, Richard Markoff includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Ocado Grocery facing as an external strategic factors. Some of the topics covered in Tesco and Ocado: Competing Online Models case study are - Strategic Management Strategies, and Technology & Operations.
Some of the macro environment factors that can be used to understand the Tesco and Ocado: Competing Online Models casestudy better are - – increasing government debt because of Covid-19 spendings, increasing energy prices, technology disruption, geopolitical disruptions, banking and financial system is disrupted by Bitcoin and other crypto currencies, cloud computing is disrupting traditional business models, digital marketing is dominated by two big players Facebook and Google,
talent flight as more people leaving formal jobs, challanges to central banks by blockchain based private currencies, etc
Introduction to SWOT Analysis of Tesco and Ocado: Competing Online Models
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Tesco and Ocado: Competing Online Models case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Ocado Grocery, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Ocado Grocery operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Tesco and Ocado: Competing Online Models can be done for the following purposes –
1. Strategic planning using facts provided in Tesco and Ocado: Competing Online Models case study
2. Improving business portfolio management of Ocado Grocery
3. Assessing feasibility of the new initiative in Technology & Operations field.
4. Making a Technology & Operations topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Ocado Grocery
Strengths Tesco and Ocado: Competing Online Models | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Ocado Grocery in Tesco and Ocado: Competing Online Models Harvard Business Review case study are -
High switching costs
– The high switching costs that Ocado Grocery has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Strong track record of project management
– Ocado Grocery is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Organizational Resilience of Ocado Grocery
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Ocado Grocery does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Learning organization
- Ocado Grocery is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Ocado Grocery is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Tesco and Ocado: Competing Online Models Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Ability to lead change in Technology & Operations field
– Ocado Grocery is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Ocado Grocery in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Sustainable margins compare to other players in Technology & Operations industry
– Tesco and Ocado: Competing Online Models firm has clearly differentiated products in the market place. This has enabled Ocado Grocery to fetch slight price premium compare to the competitors in the Technology & Operations industry. The sustainable margins have also helped Ocado Grocery to invest into research and development (R&D) and innovation.
Ability to recruit top talent
– Ocado Grocery is one of the leading recruiters in the industry. Managers in the Tesco and Ocado: Competing Online Models are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Analytics focus
– Ocado Grocery is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Ralf W. Seifert, Richard Markoff can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Operational resilience
– The operational resilience strategy in the Tesco and Ocado: Competing Online Models Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Successful track record of launching new products
– Ocado Grocery has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Ocado Grocery has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Diverse revenue streams
– Ocado Grocery is present in almost all the verticals within the industry. This has provided firm in Tesco and Ocado: Competing Online Models case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Superior customer experience
– The customer experience strategy of Ocado Grocery in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Weaknesses Tesco and Ocado: Competing Online Models | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Tesco and Ocado: Competing Online Models are -
High operating costs
– Compare to the competitors, firm in the HBR case study Tesco and Ocado: Competing Online Models has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Ocado Grocery 's lucrative customers.
High cash cycle compare to competitors
Ocado Grocery has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Ocado Grocery is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Tesco and Ocado: Competing Online Models can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Products dominated business model
– Even though Ocado Grocery has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - Tesco and Ocado: Competing Online Models should strive to include more intangible value offerings along with its core products and services.
High bargaining power of channel partners
– Because of the regulatory requirements, Ralf W. Seifert, Richard Markoff suggests that, Ocado Grocery is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
Interest costs
– Compare to the competition, Ocado Grocery has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Tesco and Ocado: Competing Online Models, is just above the industry average. Ocado Grocery needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Tesco and Ocado: Competing Online Models, it seems that the employees of Ocado Grocery don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Low market penetration in new markets
– Outside its home market of Ocado Grocery, firm in the HBR case study Tesco and Ocado: Competing Online Models needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Increasing silos among functional specialists
– The organizational structure of Ocado Grocery is dominated by functional specialists. It is not different from other players in the Technology & Operations segment. Ocado Grocery needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Ocado Grocery to focus more on services rather than just following the product oriented approach.
Slow to strategic competitive environment developments
– As Tesco and Ocado: Competing Online Models HBR case study mentions - Ocado Grocery takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
Opportunities Tesco and Ocado: Competing Online Models | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Tesco and Ocado: Competing Online Models are -
Leveraging digital technologies
– Ocado Grocery can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Better consumer reach
– The expansion of the 5G network will help Ocado Grocery to increase its market reach. Ocado Grocery will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Buying journey improvements
– Ocado Grocery can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Tesco and Ocado: Competing Online Models suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Loyalty marketing
– Ocado Grocery has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Ocado Grocery to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Creating value in data economy
– The success of analytics program of Ocado Grocery has opened avenues for new revenue streams for the organization in the industry. This can help Ocado Grocery to build a more holistic ecosystem as suggested in the Tesco and Ocado: Competing Online Models case study. Ocado Grocery can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Ocado Grocery to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Ocado Grocery to hire the very best people irrespective of their geographical location.
Using analytics as competitive advantage
– Ocado Grocery has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Tesco and Ocado: Competing Online Models - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Ocado Grocery to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Technology & Operations industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Ocado Grocery can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Ocado Grocery can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Learning at scale
– Online learning technologies has now opened space for Ocado Grocery to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Ocado Grocery is facing challenges because of the dominance of functional experts in the organization. Tesco and Ocado: Competing Online Models case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Low interest rates
– Even though inflation is raising its head in most developed economies, Ocado Grocery can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Ocado Grocery can use these opportunities to build new business models that can help the communities that Ocado Grocery operates in. Secondly it can use opportunities from government spending in Technology & Operations sector.
Threats Tesco and Ocado: Competing Online Models External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Tesco and Ocado: Competing Online Models are -
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Ocado Grocery with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Consumer confidence and its impact on Ocado Grocery demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Ocado Grocery in the Technology & Operations industry. The Technology & Operations industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Ocado Grocery in the Technology & Operations sector and impact the bottomline of the organization.
Technology acceleration in Forth Industrial Revolution
– Ocado Grocery has witnessed rapid integration of technology during Covid-19 in the Technology & Operations industry. As one of the leading players in the industry, Ocado Grocery needs to keep up with the evolution of technology in the Technology & Operations sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Regulatory challenges
– Ocado Grocery needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Technology & Operations industry regulations.
Stagnating economy with rate increase
– Ocado Grocery can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
High dependence on third party suppliers
– Ocado Grocery high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Shortening product life cycle
– it is one of the major threat that Ocado Grocery is facing in Technology & Operations sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Ocado Grocery can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Tesco and Ocado: Competing Online Models .
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Ocado Grocery business can come under increasing regulations regarding data privacy, data security, etc.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Ocado Grocery will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Weighted SWOT Analysis of Tesco and Ocado: Competing Online Models Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Tesco and Ocado: Competing Online Models needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Tesco and Ocado: Competing Online Models is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Tesco and Ocado: Competing Online Models is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Tesco and Ocado: Competing Online Models is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Ocado Grocery needs to make to build a sustainable competitive advantage.
