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IT Investments and Porters 5 Forces in TESCO - 1996 Case Study
1. Enterprise Applications and Relation Management
Assignment #1
Case Study
Niranga MS14901836 | Ruhaim MS14901218 | Nipuna MS14902208 | Shanica MS15903434 | Thakshila MS15900150 | Vishwanie MS14900600
2. Question 01
Any business should understand the internal and external environments in which it operates. Porter’s
5 Forces model is used to analyze the external competitive environment of a firm. Discuss how and
why Strategic deployment of Information Technology at TESCO case study in terms of Porter’s 5
Forces model.
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4. IT investments by TESCO
● Distribution system
● Electronic Point of sale
(EPOS)
● Electronic Data
Interchange (EDI)
● Pre planning supply
schedules
● DSS for forecasting
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5. Rivalry among competitors
● Multiple store formats such as superstores, compact stores, metros, express
stores make TESCO more accessible and provide the unified experience.
● Not having to keep excess stock in stores allow the total space to be used for
sales, huge benefit over other competitors.
● E-POS helped to gain advantage over retailers like Boots and WH Smith where
only certain products contained barcodes
● Barcode system eliminated the need for individually pricing products thus saved
a lot of time when stocking and restocking
● Barcode system allowed price changes to implemented rapidly and controlled
from a centralized location.
● Inventory control and DSS helped the stores to be always stocked based on
demand
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6. Bargaining power of suppliers
● Internet helps invite suppliers to engage in bids or auctions when either the retailer has a
specific shortage or a supplier has excess inventory.
● Exposing an instant record of sales and stock movement via Tradanet Electronic Data
Interchange (EDI) allow the suppliers to monitor performance and pre-plan delivery
schedules.
● Investing on food technology and ethical product labelling allowed TESCO to push own
brand products, this keeps its suppliers in check and reduces bargaining power.
● The supply chain backed by IT, only made suppliers to deliver to only a handful of
intermediate warehouses, this reduced costs for the supplier.
● Warehouses are managed by multiple specialist distribution companies. So TESCO was not
bound to a single one
● IT is used to also monitor warehouse efficiencies – space and vehicle utilization, delivery
times linked to route planning, etc.
● IT eliminated need for sales reps to visit or call, also allowed TESCO to work with 2500+ of
suppliers
● TESCO created a strong network “community”, with its suppliers through the IT
implementations
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7. Bargaining power of buyers
● Porter’s Five Forces of buyer bargaining power refers to the pressure consumers
can exert on businesses to get them to provide higher quality products, better
customer service, and lower prices.
● Tesco tries to reduce bargaining power of buyers..
○ Tesco Provides loyalty schemes with various benefits like discounts and etc.
○ They Display price differentiations of various products with regards to their
competitors.
○ Late payments and electronic funds transfers are allowed.
○ Sell wider overall product range with many flavours.
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8. Threat of new entrants
In Porters five forces, Threat of new entrants refers to the threat new competitors
pose to existing competitors in an industry.
How TESCO handles this…
● Move with latest technologies.
● Keep full potential of networked supply-chain management has not yet been
achieved by any retailer.
● Due to high capital investment required and brand name recognition, competing
is difficult for new entrants.
● Come up with new innovations
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9. Threat of substitute products and services
● Porter’s threat of substitutes definition is the availability of a product that the
consumer can purchase instead of the industry’s product. A substitute product is
a product from another industry that offers similar benefits to the consumer as
the product produced by the firms within the industry.
● How TESCO handles this.
○ All items are available under one roof
○ Many flavours of one product domains are there in various shelves.
○ Publish advertisements to make popular TESCO among customers.
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10. Question 02
In 1985, Porter introduced a generic value chain model that comprises a sequence of activities found
to be common to a wide range of organizations. Porter has said that it is how a company links
activities together, rather than the activities themselves that gives a company advantage over others.
Analyze the TESCO case study, strategic deployment of Information Technology using value chain
analysis.
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12. Key Elements
Electronic point-of-sale (EPOS)
● It is self-contained, computerized bar coded system that enables an efficient
recording of the sale of goods or services to the customer
Electronic data interchange (EDI)
● Electronic Data Interchange (EDI) is the computer-to-computer exchange of
business documents in a standard electronic format between business partners.
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13. Inbound Logistics
Inbound logistics is an integral element of business operations for a manufacturing firm,
involving the processes of receiving, storing and disseminating incoming goods or material
for use
EPOS
● Inspect the goods on shelves & bar code scanning using portable data-capture
machines used for checking shelf stock levels and send the data to centralized
system.
● Based on centralized system figures monitoring warehouse efficiency, space and
utilization.
EDI
● Receive the supplier delivery note and sending the promissory note via EDI.
● Electronic payment and funds transferring.
● Delivery times planning through route linking.
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14. Operations
Operations transform resource or data inputs into desired goods, services, or results,
and create and deliver value to the customers.
● Suppliers have systematically joined Tesco’s network (‘community’)
● Provide knowledge of EDI for suppliers by seminars
● EDI is not just for PO releasing and invoices, but to broadcast forecast
information.
● Up-to-date product information's
● Faster movement of information and shorter supply times
● Handling large number of suppliers through the network
● Effective operation by efficient procurement and customer services.
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15. Sales & Marketing
Attracting potential customers to enhance business or activity of selling goods
or services
● Efficient Customer Response (ECR)
● likelihood of stock-outs and the consequent loss of sales is minimized.
● Sales & cash flow monitoring via system
● Loyalty programs through IT discourage the customers from brand switching
● Based on sales patterns through system make sure product availability with
competitive prices
● Based on system data statistics planning seasonal offers.
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16. Services
All the activities required to keep the product / service working effectively for the
buyer after it is sold and delivered.It enhance the product’s value.
● Introduction of virtual super markets by using IT infrastructure is another
competitive advantage.
● Having support desk to facilitate customer care and services.
● Club card records a customer purchases and award a credit for use with
future purchases.
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17. Outbound Logistics
Required to transfer the finished products to the customers via warehousing, order
fulfillment, transportation, and distribution management.
● The company has developed four convenience store formats.
- Superstores
- Compact stores
- Metros
- Express stores
● EDI has developed in parallel with composite, multi temperature food warehouses and trucks.
● EPOS extract updated information from centralized systems. eg. transmit orders via Tradanet,
evaluate profitability.
● EPOS reduce the cost of all outbound operations eg. lower cost to suppliers and company.
● EPOS has developed to predict demand patterns for individual stores.
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18. Support Activities
The activities that the organization performs to assist the primary activities to gain the
competitive advantage
● Procurement - Supply Chain Management
(EPOS, EDI, Pre-planning with suppliers, Decision Support System, Streamlined Distribution)
● Technology Development - Centralized Automated Information
Management System
● Human resource management - Structured process for recruitment and
Selection
● Infrastructure - Collaborative work systems
(Stronger cash flow and improved profit for all parties)
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19. Competitive Advantage
● The central computer system will contain information on the margin and
relative profitability of every item.
● Making decisions concerning which products to boost and promote and
which ones drop.
● Speed up the warehouse efficiency and to reduce the costs of distributing
the products.
● used to minimize duplication.the fewer times that actual deliveris and the
support documentation need to be checked, the speedier and cheaper in
the system.
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20. References
● Porter, Michael E, and Victor E Millar. 1985. How information gives you competitive
advantage. Harvard Business Review, Reprint Service, July.
● Management: a methodological approach". 4th Edition, 1994. Addison-Wesley.
Reading Mass.
● Porter, Michael E. 1987. From competitive advantage to corporate strategy. Vol. 59.
Cambridge, MA: Harvard Business Review, May 1.
● http://en.wikipedia.org/wiki/Tesco
● http://www.mindtools.com/pages/article/newTMC_08.htm
● http://researcharticlebase.blogspot.com/2011/11/tesco-porters-five-force-model.html
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