Business & IT Strtergies and Informtion Systems - Case Study Example

Business & IT Strtergies, Informtion Systems May 2006 Introduction The increse of gret interest in inter-orgniztionl reltions is due to developments in technology nd mrkets. In technology, there is fst development nd prolifertion of novel opportunities, e.g. in informtion nd communiction technology (ICT), micro-mechnics, optics, sensors, their combintion in robotiztion, biotechnology, new mterils nd surfce technologies. In mrkets, there is brod globliztion, prtly s result of new opportunities offered by ICT. The ltter ICT offers new opportunities for co-ordinting ctivities cross mrkets nd orgniztions. Within n orgniztion, ICTs eliminte low vlue dded ctivities nd other intermediries in the vlue chin nd increse the effectiveness of plnning nd coordintion. Thus new sources of competitive dvntge--coordinting nd integrtion skills--become strtegic wepon tht is not rooted in trditionl fctors. The requirements of globl sourcing, rel-time informtion shring, mss customiztion nd virtul clustering of ctivities redefine ntionl competitiveness--nd the links between firms nd their home territories--in wys significntly different from those envisioned erlier. Current pper presents n overview of orgniztionl business strtegy in terms of ITC inititive to support business nd build competitive dvntge. Prticulrly, the cse of Tesco grocery is provided to cover the issues of corporte informtion nd communiction strtegy. Executive Summry Tesco is one of the lrgest food retilers in the world, operting round 2,318 stores nd employing over 326,000 people. 1 s well s operting in the UK, it hs stores in the rest of Europe nd si. It lso provides online services through its subsidiry, Tesco.com. The UK is the compny's lrgest mrket operting under four bnners: Extr, Superstore, Metro nd Express. Tesco sells pproximtely 40,000 food products in its superstores, s well s clothing nd other non-food lines. The compny's own-lbel products re t three levels, vlue, norml nd finest. Own brnd ccounts for pproximtely 50% of sles. s well s convenience produce, mny stores hve gs sttions. The compny hs become one of Britin's lrgest petrol independent retilers. Other retiling services offered in the UK include Tesco Personl Finnce nd Tesco.com. Tesco Personl Finnce is joint venture with the Royl Bnk of Scotlnd. It hs over 3.4 million customers, nd provides vrious finncil products nd services. The compny hs opertions in the rest of Europe, including the Republic of Irelnd, Hungry, Polnd, Czech Republic nd Slovki. (Finch 2005) Tesco's Republic of Irelnd business opertes in the region of 82 stores, nd round 60 stores in the Hungrin mrket. Tesco's Polish opertions include former HIT operted stores. It opertes round 66 hypermrkets nd supermrkets in this country. In the Czech Republic nd Slovkin mrkets, Tesco opertes 22 nd 23 hypermrkets respectively. (Flvin, 2005) Tesco lso opertes stores in si, including Thilnd, South Kore, Mlysi nd Tiwn. The compny opertes 64 stores in Thilnd nd 28 stores in the South Koren Mrket, while in the Tiwnese nd Mlysin mrkets it hs three stores in ech ntion. Business Strtegies of Tesco Tesco core competencies When speking of compny's core competencies it is mter of discussing compny's competitive dvntge tht differentite it from the list of competitors. The most importnt trget for Tesco is to set the competent position between businesses on the mrket nd sustin its mrket power through long period of opertions nd ctivities. There theory sttement s for the mtter of sustinble development nd core cmpetences of the business where Tesco opertes is the on tht dvises the compny to dpt in ccordnce to chnges in compny's enverinment; it should be flexible nd evolve over time. Therefore, Tesco needs to dpt to new rpidly chnging circumstnces nd opportunities, so its core competencies will hve to dpt nd chnge. The exmple of this ws when the compny hs lunched its loylty crd nd went into bnking. Core competences cn be shped within the frmework of following three fctors: Provision of potentil ccess to wide vriety of mrkets might crete the opportunity to ccess new products nd services. In the cse of Tesco it is helpful s it helped the compny to estblish strong ledership position in food retiling industry. The compny used oe of its core competences, distinctive brnd position, nd entered the mrket of food/non-food retiling. Tesco is recognized s the compny, providing the most customized nd efficient service, bsed on good customer reltionship mngement. Mking significnt contribution to the perceived customer benefits of the outcome: helps to deliver fundmentl customer benefit. In order to identify core competences in prticulr mrket, the question of - why is the customer willing to py more or less for one product or service thn nother- needs to be ddressed. For exmple, Tesco hve been very successful in cpturing the ledership of the retiling mrket. This shows tht Tesco designs nd implements effective supply systems nd deliver n efficient "customer interfce". Tesco ws the first UK grocer to lunch loylty crd nd hs been the most effective. Plmer (2004) clims tht until recently, it ws the only grocer to use the informtion to mil customers every month. Core competence should be unique: This indicted the importnce of product differentition. For exmple, for mny yers up to 20032 Tesco hd very strong position within the retiling industry. It hd different pproch to the service concept, providing good corporte reputtion nd introducing new premium qulity products (MrketWtch, 2004). If pplying this fctors, Tesco is likely to be effective competitor on the retil mrket s it will find its cpbilities nd will successfully exploit the vilble resources. In the externl environment, the intensity of competition is not completely under the retiler's control, however, to compete effectively Tesco hve to identify its core competences nd use them for compny's dvntge. Tesco business strtegies In order for such lrge retil compny s Tesco to sustin its development it should follow either one of three generic strtegies, developed by Porter: the strtegy of ledership, strtegy of differentition, nd strtegy of focus. The strtegy of cost ledership indictes tht Tesco cn hve the lowest costs in the industry while offering the lowest prices. This strtegy is bsed on Tesco's bility to control its operting costs so well tht it is ble to price their products competitively nd be ble to generte high profit mrgins, thus hving significnt competitive dvntge. Strtegy of differentition tells tht it is needed to offer services nd products with unique fetures nd chrcteristics so tht customers differentited them from those of other retil shops'. The third nd lst strtegy of focus is either cost ledership or differentition strtegy imed towrd nrrow, focused mrket. In pursuing cost ledership strtegy Tesco focuses on the cretion of internl efficiencies tht will help them withstnd externl pressures. Therefore, it ppers resonble to think tht Tesco will hve frequent interctions with the governmentl/regultory nd supplier sectors of the environment. In ccordnce to this frmework, while both overll cost ledership nd differentition strtegies re imed t the brod mrket, Tesco my lso choose to confine their product to specific mrket res or my choose to offer smller line of products to the brod mrket, thus pursuing strtegy of focus or niche (Toni, Tonchi, 2003). In other words, Tesco pursues strtegy of cost ledership or differentition either in specific mrket or with specific products. Tesco ICT strtegy Tesco.com is the lrgest nd most successful online grocery retiler in the world. In 2004 it turned over more thn 719 million (U.S.$1.37 billion), compred to 150 million (U.S.$286 million) four yers erlier. It hs severl million registered customers nd fulfils 150,000 customer orders every week. Its success is built on n intelligent IT strtegy tht extrcted mximum vlue from existing nd new technology. Jon Higgins, Hed of IT, Tesco.com, sys: "Before our lunch s pilot, we wnted to mke sensible investments in technology infrstructure. So we imed for n evolving pproch for service tht offered lots of potentil." (Lethy, 2004) Tesco.com ws estblished to complement the existing stores infrstructure. It reflects wider strtegy to extend the shopping experience nd diversify ctivities by building on the existing successes of the stores. key element in driving this strtegy forwrd is deploying technologies tht cn esily blend with the existing pltform. This furthers the ultimte objective of enbling customers to ccess wht they wnt, when they wnt it, while t the sme time gining greter insight into customer behviour. criticl component of this strtegy ws fulfilling customer orders t locl stores. Higgins sys: "Building seprte physicl distribution infrstructure would hve sent costs soring. Using stores mens we cn keep costs down, nd roll out the service grdully." t the firm level, Tesco constitutes n excellent exmple of firm in non-high-tech environment which is hrnessing the power of ICTs to lter the wy it conducts its globl chocolte business. Most indictive of the potentil for corporte trnsformtion is the cretion of n internl informtion-shring site on suppliers nd prices. The compny's ntionl subsidiries hve trditionlly distributed best grocery products for Tesco. With the help of ICT, the compny is ble to mintin its utonomy while benefiting from the cpcity to exert mrket power by cting in coordinted mnner. Tesco reports reducing its suppliers by more thn two thirds nd procurement costs by up to 20% s result. In ddition, the compny is contrcting with outside suppliers through web-bsed system nd now plns to close or sell up to third of its 86 plnts round the world tht process coco butter nd powder into its multitude of product offerings. Finlly, it is s hifting s much s 20 percent of its globl dvertising budget for compny's products to the Internet. (Lethy, 2004) To chieve these ims it needed dtbse tht could cpture customer orders nd trnsmit dt to stores. But criticlly, it needed to scle to meet growing demnd s the service evolved nd be powerful enough to perform consistently s the number of customers grew. further considertion tht rose s the service developed ws the need for mobile element to the solution. Higgins sys: "The dtbse needed to be robust enough to hndle lrge strems of dt from the Web site. But there ws lso point when we knew we would wnt to trnsfer customer orders directly from the order dtbse to mobile devices, to increse the ese nd speed of picking nd pcking. We required dtbse tht could fcilitte this."(Lethy, 2004) ICT Solutions for Tesco In order to mintin growth strtegy, Tesco.com decided to implement solution bsed on Microsoft technologies. In 1997, Tesco.com implemented Microsoft SQL ServerTM version 6.5 nd lter Microsoft SQL Server ws upgrded with 7.0 version. In 2001, s the number of stores delivering online grocery shipping climbed to well over 200, nd the number of customers incresed rpidly, Tesco.com needed to upgrde to Microsoft SQL Server 2000 Enterprise Edition, prt of Microsoft Windows Server System integrted server softwre. This version mde it possible to see need for rpid nd esy dt trnsformtion s well s nlysis tools for customer dt. With the help of new technologies, Tesco cn hndle very high increses in customer spending little time on communiction. (non, 2004) Developers cn lso work esily within the SQL Server environment. SQL Server includes n integrted debugger, clled Trnsct SQL. Developers cn reuse code, which simplifies the development process. It is very helpful to hve n environment, tht our developers nd dtbse dministrtors re fmilir with. dt trnsformtion service (DTS) mkes it esy to extrct, trnsform, nd lod dt from different sources using object linking nd embedding, open dtbse connectivity (ODBC), or text-only files. This is criticl becuse Tesco.com cptures gigbytes of in-store dt on n IBM minfrme every dy. (non, 2004) Benefits of Tesco ICT business strtegy ) Dtbse Underpins Rpid Growth Tesco.com broke into profit in 2001 ided by SQL Server 2000. SQL Server is one of compny's most criticl ssets nd if it went down we would risk disppointing customers but it hs lwys hndled wht we hve given it to do. It processes over 3,000 online orders n hour during pek times, holds ll of our customer informtion, nd underpins the success of Tesco.com. b) Relistion of Smrter Shopping Tesco's long term im is to enble customers to ccess wht they wnt, when they wnt it nd t good prices. In short it wnts to provide smrter shopping experience for its customers-wherever they my be. Tesco.com is criticl component within this strtegy. It provides blend of both physicl stores nd online shopping experiences, ensuring consistent brnd experience throughout ll customer interctions. Customers should get the sme high level of service online s they do in-store. c) Drives the Introduction of Personlistion Personlised Web sites for ech customer hve long been n mbition of most opertors of online services, to strengthen customer loylty nd drive future sles. Tesco.com initilly used SQL Server to verify customers, vlidte credit crd detils, nd record items of shopping online. In October 2003 it implemented nother SQL Server dtbse to cpture loylty crd customer informtion. When new Web site users register using their Club Crd, they re presented with list of ll the products tht they purchsed in the lst six weeks. The Club Crd informtion is cptured on n IBM minfrme. SQL Server extrcts dt from the minfrme to consolidte both in-store nd online informtion. It mkes drmtic difference to how people shop online. Shoppers don't hve to go through n extensive list, clicking individul items ech time they mke purchse. ll their previous purchses re presented to them in fvourites Web pge. This increses customer stisfction, which complies with compny's vision of doing business. d) Performnce Fuels Overses Expnsion Tesco.com in the United Kingdom hs been so successful tht the online grocery service hs been extended brod to 18 stores in Irelnd; joint venture in the United Sttes with Sfewy in 100 stores; nd pilot in South Kore. Driving enterprise worldwide is huge dvntge for compny's globl business model. Implementing proven technology into other stores is n efficient nd cost-effective wy of expnding. In 1999, Tescp embrked on n mbitious overses expnsion pln, nd by the end of 2005 operted 585 outlets outside the UK. In si, the group operted 107 stores in Thilnd, five in Tiwn, six in Mlysi, 38 in South Kore nd 104 in Jpn. In July 2005, the group secured joint venture del with the Ting Hsin Group, which finlly gve Tesco foothold in Chin. The compny owns 50% of the Hymll chin of 31 hypermrkets. Europen opertions include outlets in the Czech Republic (25), Hungry (69), Polnd (78), the Republic of Irelnd (87) nd Slovki (30). (Desjrdins, 2005) ICT certinly contributed to these gret chievements of Tesco in interntion expnsion nd sustinble development. e) Mobility Strengthens Customer Reltions Customers' orders re cptured in the centrl SQL Server environment nd utomticlly plced to dtbses in the suitble stores, which determine when the orders should be tken. Orders re then downloded wirelessly onto hndheld device, secure, sclble operting system tht cn be customised for powering point-of-service terminls within the retil industry. When the order is picked, the store's SQL Server is updted. This informtion is then loded onto vn driver's Microsoft Windows Mobile-bsed Pocket PC, which hs specificlly designed ppliction used to check whether customer receives everything they ordered. If there re ny inpproprite product substitutions these re identified upon delivery to the customer nd the store's SQL Server is gin updted.(non, 2004) Higgins, executive mnger of Tesco grocery sys: "This mens we cn very esily report bout in-store productivity nd progress nd ccurcy of picking nd delivery. It improves store opertions nd ultimtely benefits the customer."(Desjrdins, 2005) Recommendtions In rpidly chnging business environment with high competitors' pressure Tesco hve to dopt new expnsion strtegies or diversified the existing in order to sustin its leding mrket position in n lredy estblished retiling mrket. The compny must constntly dpt to the fst chnging circumstnces. Strtegy formultion should therefore be regrded s process of continuous lerning, which includes lerning bout the gols, the effect of possible ctions towrds these gols nd how to implement nd execute these ctions. The qulity of formulted strtegy nd the speed of its implementtion will therefore directly depend on the qulity of Tesco's cognitive nd behviourl lerning processes. Conclusions Through bove report, I hve identified Tesco's current position on grocery mrket s well s mde profound nlysis of its business nd ICT strtegies on the locl nd interntionl mrkets. Reserch hs shown tht Tesco tried to rebuild their brnd imges nd sustin their leding position on the mrket. Bsic ccent hs been mde on the discussion of SQL Server which is criticl to the success of Tesco.com. It ws emphsized tht compny's ICT strtegy is the foundtion of Tesco's interntionl expnsion nd sustinble development nd this is the gretest fctor tht underpins compny's success. Using the tool of online retiling, Tesco is ble to ttrct number of customers without providing in-person services in groceries. When following this srtegy it is importntly to her up the reccomndtions to implementing integrted mrketing communictions in the Compny which is the effective process of continully religning mngers' priorities nd resources with orgniztionl gols; science of "plying gme" on the mrket under the conditions of high rivlry nd competing prices. Success of Tesco shows how fr the brnding nd effective service delivery cn come in moving beyond splshing one's logo on billbord. It hd fostered powerful identities by mking their retiling concept into virus nd spending it out into the culture vi vriety of chnnels: culturl sponsorship, politicl controversy, consumer experience nd brnd extensions. Bibliogrphy: 1. De Toni . nd Tonchi S. (2003) Strtegic plnning nd firms' competencies: Trditionl pproches nd new perspectives, Interntionl Journl of Opertions & Production Mngement, Vol. 23 Issue 9, pp.947-976; 2. Desjrdins D. (2005) Tesco strtegies turn up competitive het in UK, DSN Retiling Tody, 2/28/2005, Vol. 44 Issue 4, pp.4-6; 3. Dtmonitor Report (2003) Food retil industry profile: United Kingdom, Jnury; 4. Dtmonitor Report (2004) Compny Profile: Tesco PLC nlysis, November; 5. Johnson G. nd Scholes K. (2002) Exploring Corporte Strtegy, 6th ed.,Prentice Hill: London; 6. Lethy T. (2004) Tesco nd wht customers relly wnt, Brnd Strtegy, Issue 185, p.15; 7. Mintel Report (2004) Food Retiling -UK, Retil Intelligence, Nobember; 8. MrketWtch (2004) Compny Spotlight: Tesco, Dtmonitor, September; 9. Plmer M. (2004) Interntionl retil restructuring nd divestment: the experience of Tesco, Journl of Mrketing Mngement, November, Vol. 20 Issue 9/10, pp.1075-1101; 10. non (2004) Cse study IV: Tesco implements the business engine network to gin full control of its IT project portfolio, Journl of Dtbse Mrketing & Customer Strtegy Mngement, Vol. 12 Issue 1, pp.66-73; Read More