Tesco (TSCO) SWOT Analysis / TOWS Matrix / 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 – increasing commodity prices, supply chains are disrupted by pandemic , there is increasing trade war between United States & China, customer relationship management is fast transforming because of increasing concerns over data privacy, wage bills are increasing, there is backlash against globalization, challanges to central banks by blockchain based private currencies, increasing energy prices, increasing transportation and logistics costs, etc

---

---

---

---

Introduction to SWOT Analysis of Tesco

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 -

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.

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.

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.

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.

Innovation driven organization

– Tesco is one of the most innovative firm in Retail (Grocery) sector.

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.

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.

Low bargaining power of suppliers

– Suppliers of Tesco in the Services sector have low bargaining power. Tesco has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Tesco to manage not only supply disruptions but also source products at highly competitive prices.

Operational resilience

– The operational resilience strategy of Tesco comprises – understanding the underlying the factors in the Retail (Grocery) 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.

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.

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.

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.

---

---

Weaknesses of Tesco | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The weaknesses of Tesco are -

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.

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.

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.

Compensation and incentives

– The revenue per employee of Tesco is just above the Retail (Grocery) industry average. It 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.

Interest costs

– Compare to the competition, Tesco 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.

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.

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.

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.

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.

High cash cycle compare to competitors

Tesco has a high cash cycle compare to other players in the Retail (Grocery) industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.

---

Tesco Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The opportunities of Tesco are -

Use of Bitcoin and other crypto currencies for transactions in Retail (Grocery) industry

– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Tesco in the Retail (Grocery) industry. Now Tesco can target international markets with far fewer capital restrictions requirements than the existing system.

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.

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.

Creating value in data economy

– The success of analytics program of Tesco has opened avenues for new revenue streams for the organization in Retail (Grocery) industry. This can help Tesco to build a more holistic ecosystem for Tesco products in the Retail (Grocery) industry by providing – data insight services, data privacy related products, data based consulting services, etc.

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.

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.

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.

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.

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.

Better consumer reach

– The expansion of the 5G network will help Tesco to increase its market reach. Tesco 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.

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.

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 Tesco 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.

---

Threats Tesco External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The threats of Tesco are -

High level of anxiety and lack of motivation

– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Tesco needs to understand the core reasons impacting the Retail (Grocery) industry. This will help it in building a better workplace.

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.

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.

Increasing wage structure of Tesco

– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Tesco.

Learning curve for new practices

– As the technology based on artificial intelligence and machine learning platform is getting complex, Tesco may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Retail (Grocery) sector.

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.

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.

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.

Stagnating economy with rate increase

– Tesco 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 Retail (Grocery) industry.

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.

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.

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.

Increasing international competition and downward pressure on margins

– Apart from technology driven competitive advantage dilution, Tesco 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 Tesco prominent markets.

---

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.

--- ---