Strategy planning is important for the success of an organization in gaining competitive position in the market. A strategy of company decides what it wants to do, how it wants to do and where it wants to be. The strategy of the company is in tune with its cultural and ethical values reflecting in the mission, vision and the goals of the company
There are various methods and tools available to develop and plan a strategy and this assignment will explore the generally available methods and at the same time take an example company for the purpose of studying the development of a strategy.
This assignment will investigate the development of a general strategy by studying the strategy planning of Tesco.
1a) Tesco Strategic Plan 2007-2012
The strategy of Tesco is to strengthen is to continuously grow and strengthen its business in UK by diversification
Strategic Goal of Tesco
Strategic goal provides the company with a sense of purpose and road map on the milestones to be reached (Johnson, 2006) .
All the plans, action, efforts and resources are directed towards achieving this strategic goal to achieve the strategic position.
The strategic goal of an organization is the basic fundamental for formulating and planning the strategy this can be observed from the strategic goal set by Tesco and how it is related to the rest of the Strategic plan. The goals of Tesco is (Tesco, 2007)
The objectives of the strategy are:
To be a international retailer
Grow and strengthen the core UK business
Replicate the success in the non-food segment like that in food segment
Focus on developing other retailing services - like Tesco Personal Finance, Telecoms and Tesco.com
Community centered activities
1b) Principles of Strategy Planning
The unique ability of humans is the ability to imagine the future (Gilbert, 2006). Planning is the charting out a route to reach a particular point in future. Planning coordinates between the processes, actions and resources in terms of
Who?
What?
When?
Where?
Why?
How?
A plan is a predefined course which defines who does what, when, where, why and how? Whereas strategy is the overall scheme which tries to analyse and estimate the various outcomes, the limitations, the options and courses available to chose and act upon.
Generally the objective of the strategy is to find an optimal way to achieve the results by the least usage of resources, leverage of resources, protecting against any expected threats and obtaining the best results. (Porter, 1980)
A strategy should be formulated and planned in the following fundamental principles,
Clear and well defined vision
Management commitment and ownership to the strategy
Realistic analysis of current situation
Consultative and consensual approach in formulating the strategy
A well defined method to evaluate the strategy
Well defined and measurable check points
Alternate course of actions and options
1c). Developing the strategy
To develop a strategy for an organization it requires two positions to be well defined
Current Situation
Future aim
Current Situation
As described earlier the company needs to do a careful and in depth analysis of its current position in terms of resources, technology, processes and serviceability. Since the second part of the strategy planning process is mostly based on estimates, targets and assumptions it is essential to start the process with accurate data and information in the form of stock taking
Future aim
The company needs to form clear and unambiguous visions and measurable goal in terms of what it wants to be. Once this is in place, the operational part of the strategy plan is easy to put in.
Going by the above the frame work for developing a strategy would be,
Vision and mission
Goals and objectives
The planning process description
Data and Analysis
Strategic Objectives
Implementation Plan
Measurement and accountability
Monitoring and feedback
Review process
1d) Tools and Techniques used in developing a strategy
There are various tools and techniques used in developing a strategy and planning like for e.g. SWOT (Strength, Weakness, Opportunity, Threat) analysis, Prioritization matrix, Process Decision Program chart etc (Brassard, 1996) but for not for profit organizations like Tesco the strategy planning seems to be technique of a brainstorming and consultative approach involving various participants, workers, influencers and decision makers of the organization.
SWOT Analysis
The SWOT analysis is the most commonly used tool for strategy planning and is usually used in the beginning of the strategy planning process followed by strategic goal setting. First the goal or objective of the analysis is defined.
A SWOT analysis is done for each and every individual objective. The outcome of the SWOT analysis gives a realistic picture of whether the objective is achievable or not and what are the steps to be taken to achieve the objectives
Strengths: These are the aspects which the organization considers will help its efforts in achieving its objectives. The strengths can be any resource, knowledge, asset, position or status which the company can use to its advantage. Tesco is affiliated with Tesco international this brings in resources, relationship and research of the confederation members
Weakness: These are the lacking or the negatives that the organization considers because of which it may not achieve its objectives. The weakness can be a lack of resources, a disadvantageous position etc.
Opportunities: These are favourably available or developing conditions and situations that the organization can use it to its advantage by leveraging its strengths and can achieve the objectives.
Threats: These are the unfavourable situations or developing conditions that pose a threat or an obstacle to achieving the organizations objective.
2a) Strategic options available to Tesco
The company has set a goal to be a successful international retailer as well as grow its domestic business. Strategically the company can chose any one i.e. to grow the domestic business or to focus on international retailing. This seems to be an option however through its diversification strategy the company is able to focus on both.
2b) Effect of Strategy on major stake holders
Stakeholders have both cause and effect on strategy. The stakeholders my directly participate in strategy planning through a representative (usually elected) in a participative strategy formulation and planning.
Stakeholders, investors and employees are concerned about their security especially in crisis times like these. The stakeholders would like to know that in pursuing new strategies whether it will weaken the current position of the company in terms of profitability, competitive advantage and value of the company.
A good and acceptable strategy has a positive effect on the stakeholders and it might increase the value of the holding shares. Similarly ambitious employees will like to support the company and stay with the company in pursuing its strategies.
2c) Stakeholders participation in strategy development
The organization should consciously work towards ensuring the participation of the stakeholders in the strategy formulation by the following,
Communication of the Strategy planning process
Access to relevant data and reports to the shareholders
Representation in the planning committee
Right to raise objections and concerns
Voting rights
These considerations will ensure that the stakeholders are actively participating in the strategy planning process
2d) Gaining commitment from Stakeholders and employees
Commitment from stakeholders towards strategy is important and required without which the implementation of the strategy and operational plan will be a one directional effort. In order to gain commitment from stake holders and employees the organization should,
Involving the stake holders and employees at policy formulation
Incorporating suggestions, assumptions and limitations voiced by the stake holders in preparing the action plan.
Clarity of structure, responsibility, accountability and measurability of objectives and target goals.
Cultural change if required.
3a) Mission, Vision and Objectives
The Mission, Vision and objectives statement is the corner stone of any strategy or policy program. As per ISO 9000 Clause 5.1 these statements are prepared by the management (Ketola and Roberts,2001)
To explain in layman's language,
Vision Statement: What the company ultimately desires to be? Like for e.g. "We would be the number one carmaker in America by sales and customer preference" to the layman this would be like a wish statement but here it can be noticed that the stamen may look like a "wish" but it is specific it defines what it means by "number one" it says "sales" and then "customer preference".
A vision statement is not a wish statement and it is a statement of desire with specific measurability. Vision statement is the guide behind all the policy,plans and strategy of the company,
Mission Statement: Having decided what the company desires to be, the mission statement is actually like a "roadmap" to achieve the vision. In layman's language "You know where you want to go now how do you want to go?.
If the vision states that the organization aims to be the number one car company then the mission should state on how it will work towards that aim like for e.g.
Manufacture cars of world class standards and quality
Invest in product development
Improve after sales service infrastructure
3b) Mission and Vision statement of Tesco
Vision
Tesco's vision is to create value for customers and earn their life time loyalty . (Tesco, 2010). which means that Tesco aims to retain its customers by providing products and services exceeding their expectation. In this was Tesco wants to be known for its quality
Mission
To achive the vision of gaining customer loyalty the following is the mission of Tesco
Understand customers.
Be first to meet their needs.
Act responsibly for our communities
3c) Cultural and ethical values and the Vision, Mission and Strategy
Every organization has a unique culture and a value system either stated or unstated. These elements play an important role in the vision, mission and strategy formulation of the company. The culture in an organization is consciously nurtured by the management and the employees or it forms and develops on its own.
We can take an example in Mercedes Benz which is a globally renowned manufacturer of high end passenger cars. Mercedes Benz right from the beginning had a "culture of excellence" (Langworth, 1984)
This is reflected in their Vision and Mission Statement which is
Vision
To be the Number 1 in Quality, Image and Profitability in the Automotive Sector in Indonesia (Mercedes Benz,2010)
Mission
To delight our customers in everything we are doing.
To continually improve the effectiveness of our Quality Management System and our business processes.
To continually improve the quality of our products and services.
To have a team-oriented and open minded corporate culture involving employees through leadership and individual acceptance of delegated responsibility
To be aware of our environment.
To have a professional relationship with our business partners.
In the case of Tesco the cultural and ethical values of the organization is reflected in the Vision and mission statement. Here it can be observed that the organization culturally is oriented towards growth this is evident in the vision and mission of expanding the capacity.
4a) Effect of current economic and business climate on Tesco
The current economic crisis has reduced the volume of most of the business being a retailing company Tesco also faces negative growths especially inthe non food segment which has the following effects
Reduced Margins due to reduced sales
Increasing expenses
With decreased demand and decrease in sales Tesco's resources have to be stretched that extra mile. It is in this situation that Tesco is trying to increase its capacities so that it is prepared for any future emergency requirements.
4b) Response of Tesco to changes in environment
Tesco has placed more importance on budget and controllable expenses. To control this they have developed strict control measures for budgets at central and decentral levels. Strict budgetary control is necessary however too much of control needs extra resources of management or in the absence of management resources things may slow down. However given no choice Tesco has to work on their budgets hence we consider the response to be appropriate.
Tesco has also reconsolidated and brought down its inventory to reduce interest expenses.
4c) Major functional Areas in Tesco
We consider the major functional areas in Tesco to be,
Sourcing of Products
Inventory and Logistics
Evaluating the Quality of Services
Sourcing of Products
Tesco is in the retailing business. It sources various products like agricultural produce, grocery, baked goods, household supplies, stationeries etc. The sourcing department has to constantly scout the market to find out good suppliers who can guarantee quality at the best competitive prices.
Inventory and Logistics
Tesco has to manage its inventories keeping in mind the following,
Perishable nature of certain goods
Inventory costs.
The inventory function has to follow a first in first out policy for distributing the goods among its stores based on the expiry date.
Evaluating Quality of Services
Customer service is of prime importance in this type of industry. This function has to take care of the processes, manpower and evaluate continually by conducting customer satisfaction surveys.The manpower should be trained in customer handling skills, process and products
4d) Development of Critical Functional Areas
To develop the critical functional resources management commitment and acceptance to develop these functions are important. Without the commitment to develop true development will not take place. For the purpose of functional development the following are essential,
Clarity in Functional Objectives
Measurable targets
Clear process description
Line of authority
Training of manpower
A suitable development for each function has to be made and monitored for results. Functional development will help the organization to achieve its organizational goals apart from the strategy and resources.
5a) Strategy Milestones
The strategy formulated for achieving the organizational goals and the strategy plan itself should be split into various milestones or checkpoints. The purpose of setting milestones is for the management to know on "how much is it still to go?"
Setting milestones will help the organization to focus more on the trees than the entire forest. Many short steps lead to the long walk.
5b) Sample time table for Tesco
5c) Evaluation of Strategy at development stage
The evaluation of strategy at the development stage will give insights into whether it is the best strategy to be followed. This is done in order to find out whether the strategy is the best one or it needs a change. Strategy alone will not contribute to the success or failure of an organization but the best strategy can bring about extraordinary results (Tilles,2010)
The strategy can be evaluated in the following ways,
Compare past results with expectations and plans
Retrospective discussion on past estimates and assumptions and its current status
Lost opportunities, unutilized strengths, irreparable weakness and new threats do a SWOT analysis again using past data.
In this way the strategy can be evaluated and can be changed for the better of the organization.
5d) Importance of Monitoring Strategy
Strategy flaws cost the company more than implementation flaws also strategy flaws can be avoided by the proper evaluation of strategy at the time of development as well as at the time of implementation. Many examples are available in History as well as business of strategy flaws which had disastrous consequences.
Apple Computers in 1995 formulated a strategy of direct buying in which to reduce the distribution costs the resellers buy directly from Apple instead of from wholesalers. Instead of increasing the sales Apple ended up with fights and tussle with resellers and after a year later Apple cancelled the program (CNET, 1997)
In 1997 the company started the program again and has since efficiently functioning achieving the desired results which is increased sales.
The program was the result of a strategy which Apple chose to compete with similar manufacturers like Dell who had very low distribution costs because they did not have any intermediaries.
The response to the program was good however after some period Apple was not able to service the direct orders due to over booking. They did not have the necessary infrastructure to service the orders.
In 1997 Apple started the program again and this time they are well prepared due to all the monitoring they had been doing when the strategy failed. These learnings have been implemented in the revised program. This example gives the importance of strategy monitoring.
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