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    Tesco Business Model Extract

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    Sajon Mohammed
    Many newly launched e-business ventures have experienced hyper-growth cycles. A downturn in technology spending resulted in a huge stock market correction. The present business environment is highly chaotic and ambiguous.

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    Tesco Business Model Extract

    Uploaded by

    Sajon Mohammed
    536 views4 pages
    Many newly launched e-business ventures have experienced hyper-growth cycles. A downturn in technology spending resulted in a huge stock market correction. The present business environment is highly chaotic and ambiguous.

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    © Attribution Non-Commercial (BY-NC)

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    Many newly launched e-business ventures have experienced hyper-growth cycles. A downturn in technology spending resulted in a huge stock market correction. The present business environment is highly chaotic and ambiguous.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    536 views4 pages

    Tesco Business Model Extract

    Uploaded by

    Sajon Mohammed
    Many newly launched e-business ventures have experienced hyper-growth cycles. A downturn in technology spending resulted in a huge stock market correction. The present business environment is highly chaotic and ambiguous.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
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    8

    Why business models matter


    (and how they can make a difference in internet commerce)
    Stephen Drew Henley Management College, United Kingdom

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    8.1 Introduction

    Numerous newly launched e-business ventures have in the space of a few years experienced hyper-growth cycles and then subsequently, in many cases, either collapsed or had to face radical restructuring to survive. The investment bank Morgan Stanley (Phillips, 2001) has estimated that about 70 per cent of all technology venture capital raised in the USA in the last 25 years has been invested in dot-coms in 1999 and 2000 alone. This huge in ux of nancing, accompanied by a migration of energetic and talented professionals and managers into high technology industries in the 1990s, led to an almost unprecedented burst of innovation and entrepreneurship. However, in late 2000 and the early months of 2001 it became apparent that such rapid growth was unsustainable. A downturn in technology spending and the consequent poor earnings of high technology companies resulted in a huge stock market correction, most markedly in the Nasdaq. History compels both practitioners and scholars of management to analyse the roots of these failures and disappointments. Although the term has rarely been de ned, much attention has been focused on the notion of a business model as a success factor. In this regard, an example of anguish and corporate soulsearching is presented by Paul Allaire, CEO of Xerox Corp, who told analysts that his companys stock price collapse was
    139

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    The Make or Break Issues in IT Management because we have an unsustainable business model (Colvin, 2001). The present business environment is highly chaotic and ambiguous. It is dif cult to construct detailed, reliable forecasts, or even well-developed future scenarios, of future consumer and market behaviour. The business viability of crucial future technologies like 3G wireless phones or advanced broadband services is not clear. In such conditions strategists often focus on lessons learned from successes, failures and similar patterns of industry evolution in earlier eras. A back-to-fundamentals approach to analysis is also evident in the recent work of Michael Porter (2001), which challenges many of the tenets of the new economy and criticizes arti cial business ventures. An argument is made here that a developed and integrated business model is an important success factor in internet commerce. The concept of a business model is distinguished from that of a business strategy, or value chain, and a framework for analysing Buy this file from http://www.download-it.org/learning-resources.php?promoCode=&partnerID=&content=story&storyID=1375 business models in fast-paced industry settings is presented.

    8.2 Insights from e-retailing


    Tesco.com is the internet food shopping service arm of the supermarket chain Tesco Plc. It took its rst on-line orders in December 1996. By early 2001 it had outdistanced all UK competitors and grown to become the worlds largest on-line supermarket, lling some 60 000 orders a week. The operation made a loss of 14.7 million in 1999 but was reported to have become pro table in 2000 after a cumulative investment of 52 million. In spring 2001, the UK customer base of over 500 000 was generating revenues of 5 million a week A visit to the Tesco.com website shows not only groceries and wine on offer, but also books, DVDs, CDs, videos, electronics and owers for sale. A typical grocery customer is a busy working mother with a family. The average order is over 75, with a further 5 charged for delivery. On-line prices are the same as those in Tesco stores. Distribution is by means of a storebased pick and pack model, in which baskets of groceries are picked directly from the shelves of 100 Tesco stores and delivered, using a eet of 700 vans, within a 2-hour time slot, until 10 pm every weekday. The Tesco.com website is well designed, functional, and supported by 130 servers to ensure reliable
    140

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    Why business models matter access. Advertising and linkages to partner sites generate further revenues. Webvan is a US counterpart to Tesco.com, established in late 1996 by Louis Borders, founder of the Borders bookstore chain. Like Tesco.com, the Webvan site offers groceries and a diverse range of consumer products including electronics, books, CDs, wines, and household goods. Unlike Tesco, Webvan was not a first-mover. Their on-line sales commenced in 1999, along with the appointment of high profile CEO George Shaheen, previously President of Andersen Consulting. By the end of that year the company was serving 21 000 customers in San Francisco, its principal market. Delivery charges were waived for orders over US$50 and average order size was US$71 in late 1999. Drops to households were scheduled within 30-minute windows. Prices were low and in most cases less than store prices. Unlike Tesco.com the operations were built from the ground up. Large (300 000+ square foot) and highly automated Buy this file from http://www.download-it.org/learning-resources.php?promoCode=&partnerID=&content=story&storyID=1375 distribution hubs, costing up to US$35 million each, were to be constructed to store and pick groceries. A US$1 billion deal was negotiated with Bechtel to build distribution centres in 26 US cities after San Francisco. Webvan also expanded through the purchase of Homegrocer.com in June 2000 (6 per cent owned by Amazon.com). Unfortunately Webvan lost US$144.6 million in 1999, and in April 2001, when CEO George Sheehan resigned, it had not reached profitability. Webvan has now ceased trading. Do these two well-known internet retailers have distinctive business models, and do differences in their business model matter? Most clearly they do, since few observers would confuse their respective approaches to e-commerce retailing. There are obvious differences in pricing, nancing, and supply chain models. Tesco.com appears positioned to grow beyond the bounds of the UK as its parent company generates above industry-average pro tability. By contrast, Webvan is struggling to maintain a listing on the Nasdaq exchange. Figure 8.1 summarizes Tesco.coms business model and e-strategy, as well as the corporate strategy of Tesco Plc. It is apparent that the business model is an important means of implementing Tesco strategy; however, it is a part, and not the whole, of that strategy. The model is a representation of how the business manages its supply chain and creates value for cus141

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    Chapter extract

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    The publisher detailed in the title page holds the copyright for this document All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recorded or otherwise, without the written permission of Spenford IT Ltd who are licensed to reproduce this document by the publisher All requests should by sent in the first instance to rights@download-it.org Please ensure you have book-marked our website. www.download-it.org

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