Table of Contents
2.1. Overview and critique of Porter’s models of competition.
2.2 Company analysis.
Overview of Tesco.
2.3 Does this theory and practice work?.
According to Johnson et al. (2015), the strategic management of a business is resource management to gain organizational goals and objectives. Strategic management sets out business goals and objectives, analyzes the external environment, analyze the internal environment, analyze the competitive position of a business, and evaluates strategies and management roles in organizations. Different theories and models are applied to develop and implement strategies for a business, where Porter’s Five Forces model is widely used to analyze the competitive situation of a business.
This paper critically analyzes the effectiveness of Porter’s Five Forces in terms of analyzing the competitive situation of businesses including Tesco. The first part of this paper gives an overview of Porter’s model along with its positive and negative sides. Then, Porter’s model is applied in the Tesco business in the second part. In the third part, it is critically evaluated how effective Porter’s model is for practitioners including Tesco. Finally, this paper concludes the finding and provides recommendations for practitioners including Tesco.
2.1. Overview and critique of Porter’s models of competition
According to Andrio (2016), Porter’s Five Forces model is a kind of model that identifies as well as evaluates the five competitive forces to help to determine the strengths and weaknesses of a business organization. In addition, Porter’s Five Forces model’s basis is a tactic of industrial organization (IO) theory (Mahabir, 2015). The industrial organization theory undertakes the industry’s attractiveness in that a business organization works. Moreover, the Five Forces model is a significant starting point for a business’s strategic analysis where the profit criteria may not use. As Martin (2015) notes, to make a strategy it is very essential to have proper knowledge of the industry in that the business organization works. Thus, it is very wise to deliberate those factors which are very significant for the participating companies in the industry.
Furthermore, Porter’s Five Forces model includes five forces including rivalry, the threat of new entrants, the threat of substitutes, the bargaining power of buyers, and the bargaining power of the suppliers. A study by Morrison (2015) said that rivalry between the existing competitors includes different types of competition such as advertising campaigns, price discounting, etc. A high level of rivalry among the existing competitors can affect the industry’s profitability. In addition, new entrants to the industry bring new capacity as well as substantial resources. The companies that enter the existing market affect competitive advantages.
According to Hanlon (2016), the bargaining power of the suppliers describes risks that the suppliers threaten the companies by increasing the products’ prices. On the other hand, the bargaining power of the buyers is high if buyers are large in number. They are able to shift to other suppliers if they are few in number. There are many benefits and limitations of Porter’s Five Forces model.
The key benefits of this model are a business organization is capable to state its attractiveness and profitability by using this model (Michaux, 2016). Then, this model helps the business organizations to identify their strengths and weaknesses and helps the organization to make a plan for a stronger position in the industry. After that, business organizations’ microeconomic theory is simplified by using this model. In addition, this model gives the opportunity to assess the competitors’ complex interactions in the industry. This model helps business organizations to evaluate the market attractiveness. According to Roy (2016), Porter’s Five Forces model’s key goal is not only to evaluate the attractiveness and profitability of the industry but also to discover the causes of profitability.
However, there are some limitations to Porter’s Five Forces model. First of all, Porter’s Five Forces model has no justification for the choice of five environmental forces (Beattie, 2018). Then, this model just creates snap-shots. After that, this model is very static. As a result, it is very difficult to determine the markets with high competition because this can change so fast.
According to Samson (2017), using Porter’s Five Forces model does not guarantee sustained competitive advantage for the business. This model does not evaluate the business organization’s capabilities and resources. This model is also unable to evaluate the business’s overall profitability. Factors of the industry are capable to justify the variations of the business performance. These factors can just motivate 20% variations in the case of business profitability, growth, and market share (Mahabir, 2015).
2.2 Company analysis
Overview of Tesco
Tesco is the chosen organization for this assignment. Tesco is the biggest and successful retailer in the UK. Originally a UK grocer, Tesco has expanded globally since the early 1990s, with operations in 11 other countries in the world. The company pulled out of the USA in 2013, but as of 2018 continues to see growth elsewhere. Since the 1960s, Tesco has diversified into areas such as the retailing of books, clothing, electronics, furniture, toys, petrol, software, financial services, telecoms, and internet services. In the 1990s Tesco repositioned itself from being a down-market high-volume low-cost retailer to one designed to attract a range of social groups by offering products ranging from low-cost “Tesco Value” items (launched 1993) to its “Tesco Finest” range.
This broadening of its appeal was successful and saw the chain grow from 500 shops in the mid-1990s to 2,500 shops fifteen years later. Now it has more than 6500 stores. Porter’s Five Forces model is a kind of model that identifies as well as evaluates the five competitive forces to help to determine the strengths and weaknesses of a business organization. Tesco is used Porter’s Five Forces model in its business to identify the strengths and weaknesses of its business. Porter’s Five Forces model analysis on Tesco Company is given as follows:…………….