Tesco (TSCO) SWOT Analysis / TOWS Matrix / MBA Resources
Retail (Grocery)
Strategy / MBA Resources
Introduction to SWOT Analysis
SWOT Analysis / TOWS Matrix for Tesco (United Kingdom)
Based on various researches at Oak Spring University , Tesco is operating in a macro-environment that has been destablized by – banking and financial system is disrupted by Bitcoin and other crypto currencies, increasing transportation and logistics costs, increasing household debt because of falling income levels, competitive advantages are harder to sustain because of technology dispersion, increasing energy prices, technology disruption, digital marketing is dominated by two big players Facebook and Google,
central banks are concerned over increasing inflation, increasing government debt because of Covid-19 spendings, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that Tesco can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Tesco, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Tesco 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 can be done for the following purposes –
1. Strategic planning of Tesco
2. Improving business portfolio management of Tesco
3. Assessing feasibility of the new initiative in United Kingdom
4. Making a Retail (Grocery) sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of Tesco
Strengths of Tesco | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Tesco are -
Ability to recruit top talent
– Tesco is one of the leading players in the Retail (Grocery) industry in United Kingdom. It is in a position to attract the best talent available in United Kingdom. The firm has a robust talent identification program that helps in identifying the brightest.
Ability to lead change in Retail (Grocery)
– Tesco is one of the leading players in the Retail (Grocery) industry in United Kingdom. Over the years it has not only transformed the business landscape in the Retail (Grocery) industry in United Kingdom but also across the existing markets. The ability to lead change has enabled Tesco in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Effective Research and Development (R&D)
– Tesco has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – Tesco staying ahead in the Retail (Grocery) industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Analytics focus
– Tesco 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 Retail (Grocery) industry. The technology infrastructure of United Kingdom is also helping it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Organizational Resilience of Tesco
– The covid-19 pandemic has put organizational resilience at the centre of everthing Tesco does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
High switching costs
– The high switching costs that Tesco 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.
Successful track record of launching new products
– Tesco has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Tesco 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.
High brand equity
– Tesco has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Tesco to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Cross disciplinary teams
– Horizontal connected teams at the Tesco are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Superior customer experience
– The customer experience strategy of Tesco in Retail (Grocery) industry is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Digital Transformation in Retail (Grocery) industry
- digital transformation varies from industry to industry. For Tesco digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Tesco has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Strong track record of project management in the Retail (Grocery) industry
– Tesco is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Weaknesses of Tesco | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Tesco are -
Slow decision making process
– As mentioned earlier in the report, Tesco has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the Retail (Grocery) industry over the last five years. Tesco even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
Low market penetration in new markets
– Outside its home market of United Kingdom, Tesco needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Lack of clear differentiation of Tesco products
– To increase the profitability and margins on the products, Tesco needs to provide more differentiated products than what it is currently offering in the marketplace.
Employees’ less understanding of Tesco strategy
– From the outside it seems that the employees of Tesco 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.
Capital Spending Reduction
– Even during the low interest decade, Tesco has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the Retail (Grocery) industry using digital technology.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Tesco supply chain. Even after few cautionary changes, Tesco is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Tesco vulnerable to further global disruptions in South East Asia.
Ability to respond to the competition
– As the decision making is very deliberative at Tesco, in the dynamic environment of Retail (Grocery) industry it has struggled to respond to the nimble upstart competition. Tesco has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Skills based hiring in Retail (Grocery) industry
– The stress on hiring functional specialists at Tesco has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Slow to strategic competitive environment developments
– As Tesco is one of the leading players in the Retail (Grocery) industry, it takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the Retail (Grocery) industry in last five years.
No frontier risks strategy
– From the 10K / annual statement of Tesco, it seems that company is thinking out the frontier risks that can impact Retail (Grocery) industry. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
Aligning sales with marketing
– From the outside it seems that Tesco needs to have more collaboration between its sales team and marketing team. Sales professionals in the Retail (Grocery) industry have deep experience in developing customer relationships. Marketing department at Tesco can leverage the sales team experience to cultivate customer relationships as Tesco is planning to shift buying processes online.
Tesco Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of Tesco are -
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Tesco can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Buying journey improvements
– Tesco can improve the customer journey of consumers in the Retail (Grocery) industry by using analytics and artificial intelligence. It 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.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Tesco 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 Tesco to hire the very best people irrespective of their geographical location.
Using analytics as competitive advantage
– Tesco has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Retail (Grocery) sector. This continuous investment in analytics has enabled Tesco to build a competitive advantage using analytics. The analytics driven competitive advantage can help Tesco to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Manufacturing automation
– Tesco can use the latest technology developments to improve its manufacturing and designing process in Retail (Grocery) sector. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Low interest rates
– Even though inflation is raising its head in most developed economies, Tesco 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.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Tesco can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Changes in consumer behavior post Covid-19
– consumer behavior has changed in the Retail (Grocery) industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Tesco 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. Tesco 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.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Tesco can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help Tesco to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Leveraging digital technologies
– Tesco 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.
Developing new processes and practices
– Tesco can develop new processes and procedures in Retail (Grocery) industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Retail (Grocery) industry, but it has also influenced the consumer preferences. Tesco can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Tesco in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Retail (Grocery) industry, and it will provide faster access to the consumers.
Threats Tesco External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of Tesco are -
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. Tesco 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.
Regulatory challenges
– Tesco 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 Retail (Grocery) industry regulations.
Shortening product life cycle
– it is one of the major threat that Tesco is facing in Retail (Grocery) sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry to Retail (Grocery) industry are lowering. It can presents Tesco with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the Retail (Grocery) sector.
Environmental challenges
– Tesco needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Tesco can take advantage of this fund but it will also bring new competitors in the Retail (Grocery) industry.
Consumer confidence and its impact on Tesco 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 Retail (Grocery) industry and other sectors.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Tesco.
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 Tesco business can come under increasing regulations regarding data privacy, data security, etc.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Tesco in Retail (Grocery) industry. The Retail (Grocery) 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.
High dependence on third party suppliers
– Tesco 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.
Technology acceleration in Forth Industrial Revolution
– Tesco has witnessed rapid integration of technology during Covid-19 in the Retail (Grocery) industry. As one of the leading players in the industry, Tesco needs to keep up with the evolution of technology in the Retail (Grocery) 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.
Easy access to finance
– Easy access to finance in Retail (Grocery) industry will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Tesco can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Weighted SWOT Analysis of Tesco Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at Tesco 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 Tesco 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 Tesco 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 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 Tesco needs to make to build a sustainable competitive advantage.