Introduction
An organization is a unit with a set ideologies and practices that are geared towards producing practical results. These sets of ideologies and practices work through strategies that are aimed at helping the organization to achieve its visions and missions. Organizational performance is the measure of the successes and failures of an organization after the application of the strategies for achieving its missions and visions. This paper will look at the environmental factors that can have an effect on the organizational performance and sustainability. It will use a concrete example from the European food and drink industry. One of the largest industries in Europe is the food and drink industry. It employs more that 3.5 million people who work in all the segments of the industry. Nine percent of the GDP of countries like the Great Britain and Germany is created by this industry. This paper is going to give an analysis of how Tesco, a leading food retailer globally, can use the PESTLE model to sustain organizational performance. There will be an emphasis on the external factors that can affect the performance of the company and advice on how the company can use these factors to improve its performance.
Tesco’s Background Information
Tesco is one of the most popular and biggest food retailers in the globe. It operates more that 2300 stores in the United Kingdom and has more than 300,000 employees. In the United Kingdom, it operates under four wings and also provides online sales and delivery services using its online subsidiary, Tesco.com. There are more that 39,000 food products that this company sells though recently, it has branched into clothing, gas and personal finance. The environment in which this company is operating in is very important for the sustenance and performance of the business. This is because it affects the strategic visions and missions of the company. If the environmental factors do not favor a certain business, the business will find it hard to survive in that environment. That is why any business must be aware of how its immediate environment can impact on its strategic plans and how the business can use the environmental factors to create a competitive advantage as it carves its own niche in the market. To understand how the environmental factors can impact the business performance of this company, it is important to carry out a PESTLE analysis of the company. PESTLE stands for political, economic, social, technological, legislative and environmental factor that impact on business performance (Estelle, 1999). The literature review below analyses the six components in the business environment that Tesco operates in with a view of giving insight on how the company can perform and sustain itself in this environment
The PESTLE analysis of Tesco
Political factors
Tesco operates in an environment that is enjoying the effects of globalization. The company has stores in more then six countries in Europe apart from the Great Britain. These countries are Slovak republic, the Czech Republic, Ireland, Hungary, Turkey and Poland. The company also operates in south East Asia where it has a heavy presence in Japan, Malaysia and six other south East Asian countries. The performance of this company in Europe is totally influenced by the politics and the legislations of the European Economic commission and the European Union. In the UK, the company performance is boosted by the state legislations that encourage companies in the line that Tesco operates in to be flexible in their employment. The company can therefore employ people ranging from the high skilled professionals to the low end semi skilled workers. This mix of human resources is very important for the survival and the performance of a business since the company is able to get a wide variety of skills and expertise from the diverse human resources that it has (Brian, 2000). The other political factor in the environment that Tesco is operating is the role of the single market. The Tesco can utilize the freedom of trade created by the statutes in the European single market to increase its presence in Europe. Looking at the countries that the company is present in Europe, it is evident that Tesco has not exploited the business opportunities that are provided by the European single market. The company is highly present in Central European countries and some few in the Eastern Europe. The company does not operate in the highly lucrative markets in the western side of Europe. The company can increase its turnover and economic strength by venturing into economically viable countries such as Italy, Spain, The Netherlands, Denmark, France and the Scandinavian countries. There may be competition from local food retailers, but a company of the stature of Tesco can easily manage to carve a niche in any competitive market, creating a competitive advantage that will sustain it in any kind of environment.
Economic Factors
Economic factors in an environment in which any business is operating in are very critical. The performance and sustenance of any company depends on the economic set up in the environment in which it is operating. To start with, economic factors influence the profits that accompany makes, the prices it sets for its products, the costs of operation and even the demand for the products that the company is selling. One of the economic factors that have had a negative effect on the business performance of this leading food retailer is the high levels of unemployment in the countries in which this company is operating in. The levels are even higher in central and eastern Europe. This unemployment situation affects the demand for the goods that the company is selling and this has an effect on production costs and the profits of the company. This is one factor that Tesco cannot control but its effects can be mitigated through the use of business level strategies. One of the business level strategies that the company can use is differentiation strategy.The differentiation strategy is a set of actions that are structured by a company to deliver services and goods at a cost that is acceptable in that the customers see as if something different has been done to guarantee satisfaction and promote affordability. According to Fred smith, the founding director of the FedEx, the main tenet of differentiation is innovation (Brian, 2000). For a firm to create products that will constantly appeal to the mass market without losing its luster, it must be enhanced through differentiation. The price of the goods and services can be more that what the clients are willing to pay so long as the differentiation creates value that was not there in the first place. The price can also be low for the low end customers to benefit. A customer can go for a unique product that is more expensive that the ordinary version of the product because they expect more value from the different product. This means that the business level strategies of Tesco should adopt differentiation strategies that offer the customers unique products even if it means at a higher price. Unique products at a higher price will tend to fetch more revenue than ordinary ones at a lower price and this is a factor that can give a business competitive advantage over its rivals in the market that have ordinary products at low cost(Dess, Lumpkin and Leisner, 2006)’. The same differentiations strategy can be used to capture the low end customers. A cheaper version of the high end product can be created so as to ensure that the company reaches the widest market possible. When the expensive products are differentiated so that they can have a cheaper version, more and more people will be able to buy and this will enable the company to fight some of the economic factors that push down the demands for products.
Social/Cultural Factors
The modern trends in consumption indicate that Britons are heavily inclined towards one stop shopping and bulk shopping. This is because there are very many social changes that have happened especially due to the liberalization of the motor industry where more and more people are able to own vehicles. With a vehicle, the volume of shopping also goes up and Tesco’s management must take advantage of the prevailing social cultural conditions to enhance its sustainability and business performance. The bulk buying trends that are there in the Great Britain have forced Tesco to diversify and the company has increased the levels of the inedible products that it avails to its customers. The other social cultural factor in the environment in which this company is operating in is demographics. The change in population patterns and behavior can have a big impact on the strategic direction of a company. The change in the consumption behaviors in the UK is something that Tesco must address so that it can react effectively for the sake of business performance and sustainability. The UK population has shifted towards the value added products. The company can therefore tackle the social cultural environment by creating a business mix that focuses on the value chain and also make operational improvements that will enable it to stay at par with the highly dynamic consumer behavior (Brian, 2000). There are many factors that are having a big impact on the social conditioning of the people. These changes in social conditioning keep on creating changes in the demand of the goods and services that the consumers use. One of the social conditioning that has had a big impact on the environment in which Tesco is operating is the rising awareness on the health issues. This awareness has changed the attitude of the people towards certain foods. To survive in this socially conditioned market Tesco must accommodate the preferences of the people. The demand for organic products has gone high and this means that the company must make structural changes that will improve its sustainability in this high volatile social environment.
Technological Factors
Technology is one of the chief variables that influence business performance and sustainability. The rate at which technology is expanding means that for firms to remain competitive, they must have the technological muscle that can influence the development of the products and services. When a firm adopts new technologies, they benefit both the consumers and the company because the consumers reap from increased satisfaction and the company reaps from increased revenue created by the satisfied consumers. The use of new technology makes the operation of a company more efficient and customer service more personalized. There is a wide variety of technologies that Tesco utilizes. To start with, the company uses the intelligent scales and the RFID technology. RFID technology is very powerful in the inventories and security. The other technologies that this company uses include electronic shelf labeling and the personalized self check machines. To remain competitive and improve on business performance, firms must be aware of the dynamics that are evident in the environments that they are operating in (Estelle, 1999). One of the latest technologies that firms must have the electronic funds transfer system. This is a very flexible system that can have a profound effect on business performance. The use of electronic scanners in firms that deal with goods is one of the newest technologies that are creating a lot of efficiency in distribution and stock related activities. Failure to keep in touch with the technological developments in the business environment can be disastrous for a company because it will create a competitive disadvantage that will have negative ramifications on business performance. It can also derail the sustainability of the company and customer loyalty.
Environmental Factors
The pressure on company to be responsible towards the society is very high. The business processes must be carried out in a way in which the society benefits. The sustainability of the environment is one of the key issues that companies must address for them to survive in the society in which they serve. Regarding environment, companies must use ethical practices that are friendly to the environment (Brian, 2000). For the case of Tesco, which is operating in the highly sensitive food industry, the company must create a corporate social responsibility that will ensure that the firm goes beyond the minimum demands of responsibility which are stipulated in regulations and corporate governance. Government regulations can have a negative effect on business performance if business does not create strategies for sustainable operations that are geared towards minimizing environmental damage. There are taxes that are leveled against the environmental offenders and they can have a heavy bearing on the finances of a company in a way that can impede its sustainability.
Legislative Factors
Laws and regulations in a country usually have a direct effect on the performance of businesses. Government policies on pricing and monopolies are the ones that affect businesses most (Brian, 2000). Firms must therefore use politically correct pricing and also refrain from using monopolistic tendencies in a competitive market because if the government cracks a whip on the company, the effects that it would have on its performance and sustainability are too dire to contemplate. Various government legislations and policies have a direct impact on the performance of Tesco.
List of References
- Brian, T. (2000). The 100 Absolutely Unbreakable Laws of Business Success, Chicago: Koehler Publishers.
- Dess, G.G. Lumpkin, GT & Eisner, A.B, (2006).Strategic Management: Text & Cases, Irwin: McGraw-Hill.
- Estelle, M. (1999). Demystifying Competitive Intelligence, Cambridge: CUP