A Wake Up Call For Tesco?

Yesterday, Tesco announced that over the next three months they are going to exit the US market – their Fresh & Easy stores have not been the success that they hoped for. The 199 stores have never made a profit and the exit is going to cost their shareholders £1.2 billion. This is not like the Tesco we all know of in the UK. To me it highlights fundamental business issues.

So, why did Tesco expand to the US and why was it a mistake?

For quite a number of years now, they have held the biggest market share in the UK superstore market, so like all businesses, they saw the opportunity for expansion, and what better place to go than the ‘land of opportunity’. It seemed like the next logical step, however, in this circumstance, this is far from the case, due to one, yet fundamental reason – Walmart. Walmart is not only the dominant supermarket in the US, but the world. In 2012, they were 3rd largest on the list of the Fortune 500 companies in terms of revenue ($447 billion). This is a list dominated (especially in the top 10) by oil companies, which just shows how much Walmart are worth and the power they possess. Trying to compete with such a powerhouse was a very bold move, but predictably, it didn’t work. They were trying to distinguish their stores to consumers looking for ‘fresh and easy’ food, but why wouldn’t they just go to a supermarket they know and trust, that will provide them with everything they need in one visit? That is the question everyone was asking, but one they could not answer.

Tesco were greedy to expect that they would be able to break into the US market with instant success. Walmart is a big part of the American culture so it was always going to be extremely difficult to enter and establish themselves in the market.

So what next for Tesco?

Well, Tesco have also expanded to Asia and all around Europe, which again has not had the success in comparison to the UK market. Therefore, for now, it looks like Tesco are going to stick to what they are good at; expanding and dominating in the UK market. They have led the way in the UK market for some time now, and they now what works and what doesn’t, so it is the best step.

It was predictable that Tesco would not survive in the US, or at least have the impact that they have in the UK. This result has now left Tesco looking a little weak for the first time in almost 20 years; well in terms of profitability anyway. The position Tesco are now in is well summed up by Robert Peston (Business Editor, BBC) “In the UK its huge market share now makes it look less like an unstoppable juggernaut and more like a massive tanker that’s hard to manoeuvre quickly or easily.”

The focus for Tesco will now be on it’s “most important market” (Phillip Clarke, CEO). This is a positive move. It will get the company back up to strength – they will be able to focus on expanding their product portfolio in the UK, increasing their dominance and if in the future they also concentrate on trying to ‘crack’ the Asian market, exciting times could be on the horizon for Tesco. The next 5 years will be key, due to the changing economic conditions and the ever increasing demands from consumers.

The US was not the right move, but sometimes greed can blind a business.


There’s No Place Like Facebook Home?

What is the purpose of Social Media? – To encourage and provide a platform for people to connect with each other. That seems like a pretty simple, yet powerful definition of what it actually is.

People use Social Networks for different reasons. The way I see it, Facebook is the current No.1 with over 1 billion users. In comparison, Twitter, which was introduced in 2006 (2 years after Facebook), has just over 500 million users. To me, this shows the fundamental difference between the two. Facebook allows its users to do a variety of different things. Twitter on the other hand, is far simpler; it is based on Tweets (status updates).

So, in 5 years time who is going to be out on top?

Put it simply, I would have said Twitter before Facebook released the ‘Facebook Home’ area of their business. Now, I feel I can say Twitter with some confidence. Although Facebook are currently leading, they are complicating and starting to change their network too much. Twitter are staying simple.

This morning, Mark Zuckerberg introduced ‘Facebook Home’ – “The family of apps that puts your friends at the heart of your phone”. It is essentially a way of Facebook dominating the operating system of your phone, well if you have an Android device anyway. You can either purchase a HTC phone (a Facebook phone, see image below) for $99, or wait until April 12th 2013 and download the different Facebook apps associated with Facebook Home (on Android phones).



Instead of being struck by a traditional ‘that looks pretty awesome’, I was left thinking ‘that is a desperate move from Facebook’. The way I see it; they trying too hard to force people to use Facebook on a increasingly frequent basis by encouraging them to buy a Facebook phone. Granted, it is pretty inexpensive, but will people drop their current phones to get a Facebook phone, or will they get one alongside their current device? Both are fairly unlikely. But of course there will be a some that will want one (particularly the younger generations). Furthermore, the apps associated with the device may encourage users to use Facebook increasingly, for example; its messaging function will be made easier, but it is unlikely to do what Facebook want it to do – they are relying on people to download the new apps but people already have a Facebook app that does everything, so why complicate it with a load of separate apps?

It seems like Facebook are trying to smother their users with their social network. I am very hesitant on it working – does a Facebook phone have a place in the market? – Does the brand have the power to persuade enough people to get one to make it a worthwhile venture?

Another interesting factor is that Facebook has only included their new anticipated ’Home’ apps on Android devices. Yes, Android are becoming very popular, but Apple still has its place. I can see why they have done it – exclusivity. However, if they really want everyone to use Facebook more, why not enable their app on all mobile operating systems? – perhaps they are hesitant on introducing ‘Home’ so are testing its success on Android devices.

I have consistently praised Mark Zuckerberg since I began blogging, so I still have faith that he knows what he is doing – but I am not convinced about this latest release. Mobile social networking is becoming increasingly important, but surely this is a step too high. Ultimately, I believe they lack the necessary monopoly power to effectively integrate ‘Home’ into everyday life.

The UK Budget 2013 – ‘Lukewarm’?

Yesterday (20th March 2013), the Chancellor of the Exchequer (George Osborne) produced this years budget. Perhaps the most striking aspect is the fact that since his autumn statement, the predicted growth figure for this year has been halved, 1.2% down to 0.6%, with growth prospects in 2014 falling by 0.2% to 1.8%. This surely shows that little, if any progress is being made on getting our economy on the up and achieving sustainable growth.

I think it is important not to get caught up in the politics of the situation so I have asked myself a few questions on the budget; Who is going to most benefit from the budget? and is it actually going to help our economy or could it be described as ‘lukewarm’?

Firstly, the drop in corporation tax to 20% in 2015 will benefit large multinationals and medium sized businesses. This reduction of tax on the profits of businesses operating in the UK will install confidence into the economy and may attract companies to the UK. However, it is still not nearly the best rate in the world, say, compared to Ireland. The ‘rich’ are due to get a little bit richer due to a typical conservative policy; reducing income tax from 50% to 45% on employees earning over £150,000 which starts from next month. Moreover, small businesses will also benefit due to a national insurance contribution to holiday for business worth up to £2,000. So, it is clear that the main benefits of this budget are due to tax reductions. This may satisfy in the short term, but is it enough?

The entire purpose of the budget should be instilling confidence back into the UK economy. Although, this is tough due to the extremely volatile economic conditions occurring in the Eurozone, which has affected us as a country. George has understandably gone about it in a conservative way; the government will spend £3bn a year from 2015-2018 on infrastructure. The Government are also going to offer guarantees from the start of 2014 for three years on £130bn worth of mortgages, along with interest-free loans worth 20% of the value of new homes on properties worth up to £600,000. His intention of this was to increase confidence for first time buyers, but it could go the other way with people investing in a second property. Either way, it will be pumping money back into the economy, helping the circular flow of income, which is vital for the UK to successfully come out of this difficult time. Money drives the economy, and with people currently prone to save due to a lack of confidence, this spending on infrastructure and the housing market improvements may help, but I am sure they are not enough.

Perhaps the most pointless, and quite frankly absurd aspect of this years budget is the reduction of 1p off the price of a pint. Which has been (predictably)  criticized by the opposition. Furthermore, the opposition have again, predictably, stated that the Government must do a u-turn on their current policy. Their current policy is one of austerity (spending cuts). In this instance, I agree with Labour. Spending is the best way to kick start our economy, but not on the scale which caused the crisis in the first place. Cutting the deficit is essential, but the coalition has hardly made any progress since they began, which suggests they are either ‘on the wrong path’, or the ‘right path’ does not exist.

Increasing the confidence in businesses to invest and consumers to spend is the best way to kick-start the economy and although the budget has tried to do this, it is unlikely to be enough, in a sense, it is ‘lukewarm’

The next interesting date in terms of the UK economy will be to see if the UK will go into a ‘triple-dip’ recession, which could well be a possibility due to the negative growth figure of -0.3% seen in Q4 of 2012.

Samsung vs. Apple – The Next Generation Of Rivalry

Last night, 14th March, Samsung launched the next generation of smartphone, the Galaxy S4. The event was held in New York, which is significant as they are a South Korean based company – the purpose was to topple Apple’s iPhone dominance in the USA. Samsung are growing in confidence, which showed last night at an impressive launch.

The S4 has many new software and hardware features. For example, the hard drive has three possible sizes (64GB being the biggest), it is thinner and slimmer than its predecessor and it has a bright 5″ touch screen with better capacity battery. What’s more, perhaps the most impressive aspect of the phone lies in the innovative new feature in terms of the camera; if someone turns away from watching a video, it will pause. This is all very impressive.

Samsung are already the largest manufacturer of Android-based smartphones with the S3 being the most popular Android-based smartphone to date. So if their new phone reaches the target of 10 million sold in the first month, predicted by analysts’, they are going to be making significant strides ahead of their Android rivals, HTC and Nokia, who have themselves recently released new phones. Morevoer, Samsung are taking advantage of Apple’s lack of recent innovative products. However, another significant point to make is that around this time each year, March/April, Apple have consistently released a new version of their prestigious  iPad. This year is different. Could it be a signal for something special in the waiting, or have they ran out of ideas? They are famous for keeping everything they are working on very secret. Therefore, they very well could have something very impressive in the making or being developed. Yes, they have not released an innovative product since the iPad, but that’s what they pride themselves on, so who’s to say they have not got something very special planned. Only time will tell. For the mean time, it is clear that Samsung have seen an opportunity to overhaul the dominance of Apple, and they may well do it. Ultimately, the sales figures for the phones will see who comes out on top. In literal terms, that could show the winner anyway.

Apple pride themselves on not only being innovative, but people ‘loving’ their products. Are Samsung trying to do the same? The vast majority of people with an Apple product have an attachment to their Apple products, or at least, used to – Apple are increasingly seen as becoming ‘boring’ as many people now own an iPhone. But Apple will already know that. That’s why I am predicting that they will more than match anything Samsung do. Well at least I would have said that with Steve Jobs at the helm. So the question is, will they?

Over time people get bored of using the same device. There are many alternative smartphones on the market, but in reality, it is becoming increasingly a two-horse race between Apple and Samsung, so many people end up choosing between the two of them.

The S4 will be released early next month. It will be interesting to see the price of three versions of the phones (dependent on the memory) as Apple have always had higher prices in comparison, but people are still willing to pay more to have one of their products. Will Samsung go for a high price and follow the same path as Apple, or will they stay with lower prices as a way to further entice consumers to have one of their products? It depends on where they see themselves in the eyes of the consumer.

Power in Organisations

Over the last half century, it is clear that although organisations have progressively increased in size and wealth, the perceived power held within organisations has not changed a whole great deal.

Power can be defined as a person’s ability to influence another person.

In 1963, Stanley Milgram carried out and published research into the area of obedience. He carried out an experiment to distinguish how much power people in a position of authority would have in commanding a person to give an electric shock to another person, even if the person believed they were endangering the life of the other person. The people (40 males, aging from 20-50 years in age and ranging in a diverse set of occupations) in the study were falsely told that the purpose of the study was to determine the effects of punishment on learning; so essentially, they were teachers. The teacher was told that the learner, who was in the next room, was strapped to a chair with an electrode attached to their wrist. Each time the learner got a wrong answer, the teacher was told (by the experimenter, who was another actor) to administer a shock to the learner. At the end of it, the purpose was to see how far the teacher would go in administering electric shocks, which ranged from 15-450 voltage markings. Moreover, if the teacher did not want to continue then they would be told, by the experimenter, that they must continue. At the end of the experiment, 65% of the participants administered the shock until the end. This shows the extent of power a person in a position of authority is able to exert, and how far people will go to ensure they obey the commands given to them. However, an important point to make is that the person in this study was wearing a white coat, which often gives that person a higher ‘perceived’ level of authority than they actually have.

In today’s day and age, the same experiment was conducted by Derren Brown on TV. The results of that experiment were fairly similar to the findings of 50 years ago, which did not surprise me. People still think the same way, times have just changed.

So, is it the same within a business? Well at lower levels of management it is likely for the employees to obey the instructions of their managers as they are likely to value their jobs very highly. That’s not to say that employees higher up in the organisation won’t value their jobs, they are just likely to feel more secure and confident in their role, so may not always obey every command spoken by their manager. There are many factors that need to be considered in a business that will affect the power that a person will feel they have, for example:

The economic climate – the current climate is not positive for many people as jobs are harder to come by and many people are just happy to have a job, especially at lower levels. Therefore the person in a position of power may feel as if they have a greater degree of power in this situation because if people don’t listen to them, they can make much more powerful threats (which could be seen as unethical but it does happen).

Ultimately, power is the same now as it was then, due to 4 essential factors:

1) Status. This is not going to be more important now, than in 20 years’ time; it is in the nature of the human race to associate status with power.

2) Claim on resources. Employees operating within the finance department of a business may feel that they are in a position of power as they manage the financials of the company.

3) Representation in powerful positions. If an employee has a good relationship with a manager high up in the organisation, they essentially have as much power as their manager, as they could use that relationship to their advantage.

4) Symbols of power. Some people will associate the car they drive, for example an Audi or Mercedes, with power. Within an organisation, an employee with their own PA will feel they have power over others that do not.

These are indicators which people use to distinguish the level of power they have. These stem from the work of Pfeffer in 1981, and I feel it is safe to say that these indicators are still as relevant today as they were then.

A Significant Time For The Future Of The Computer Market

The last 6 months has seen significant changes in the technological environment. Apple started it all off with the introduction of the iPad Mini and iPhone 5, Microsoft followed suit with their new operating system “Windows 8″ which coincided with the launch of the Windows Phone 8, leaving Google, who introduced their latest Chromebook just last month, the third generation of their Chromebooks since their inception in 2011.

A couple questions must be asked…  What market share do their operating systems have in the desktop and mobile/tablet markets? and Who is going to come out on top in the long term?

It seems essential to give a bit of background to each new product/system. Firstly, Windows 8 is designed for tablets and PC’s, which gives it more options as people are slowly transferring over from using PC’s to tablets, therefore it seems that Microsoft are moving in the right direction. Sales for the system after the first 90 days are equal to that of its predecessor, Windows 7, and at a time where the market is much more crowded in comparison to a time where Windows 7 and the iOS operating systems were leading the way, it could show that they are doing well. Next, Apple introduced the iPad Mini and iPhone 5. As I have said before in previous posts, it just shows that they are trying to crowd the market, whilst relying on the dedicated Apple fans to purchase their newest releases. Finally, Google have countered the others by introducing the latest Chromebook, which has enabled the Chrome operating system to be used on touchscreens. The whole purpose, or intention, is for Google to make deeper inroads into Microsoft’s core business, Windows.

In terms of current market share (as of February 2013), Windows are completely leading the way with desktop operating system market share of 93%, with iOS holding 5% and the others representing the last 2%. One thing that needs to be pointed out; 39% of that market share is represented by Windows XP, which is becoming very outdated as people are deciding to shift over to using tablets instead of updating their operating system on their PC’s. In terms of the mobile/tablet operating system market share, iOS are leading the way at 55%, with Android at 25%, whereas Windows Phone currently holds just over a 1% share. This is a fascinating find. Clearly, the new Windows 8 operating system for mobiles/tablets have only been in circulation for 4 months, but it just shows that Microsoft have arrived too late to the party. They are moving in the right direction, they are just a couple of years too late.

In the long term, I can see Google leading the way. Apple are currently leading the way, as the tablet/mobile market is becoming the biggest, but the loss of Steve Jobs is a huge one. Microsoft, as I said, have arrived too late to the party. They may hold the overwhelming majority of market share in the desktop market, but it is slowly shrinking. They have tried to counter this with Windows 8, but Google and Apple got there first, which is everything. iOS and Android are leading the way in the mobile and tablet markets, with many people loyal to one of them. Yes, people do like a change, but not enough to give Microsoft much of chance. I can see Google leading the way due to the lack of initiative shown by Microsoft and the current way Apple are headed, a stalemate. They need an inspirational leader to drive the company on what has made them what they are today, innovative.

Google are a brand everyone is familiar with, and with many people liking the Android software and through the slowly declining Apple, Google would seem to be in the best position.

The Value Of The Brand – Market Capitalisation

Market Capitalisation is a tool used to distinguish the net worth of a company. It is the total value of the issued shares of a publicly traded company and can be calculated by multiplying the share price by the outstanding shares. A fascinating point to make is that many companies such as Facebook, Google and Apple have very high brand value in comparison to their revenues. This begs the question; why?

Firstly, it seems appropriate to distinguish their revenues from their Market Capitalisation. The most up-to-date revenues recorded by Facebook are of $1.26 billion but they have a Market Capitalisation of just under $46 Billion, which shows that the amount they are actually making and how much the brand is perceived to be worth is hugely different. Google had revenues of $14.4 billion in Q4 of 2012, however their current Market Capitalisation is $261 billion. Apple achieved revenues of $36 billion whereas they have a Market Capitalisation of $418 billion. Each of these three companies have something distinctly in common; they are all leading the way in the technological market where the possibly for future development and expansion is high due to technological innovation. Therefore, even though Facebook is actually worth 37 times more than they are making, with Google at 19 and Apple 12, it shows that people are wanting to invest in these brands as they believe they will keep growing and make them more money. Ultimately, there is always someone who has the choice of either investment or saving and if these companies are providing potential for a lucrative return, they are going choose that option. Furthermore, it will then cause a knock-on effect, with others choosing to invest in them as well.

On the other side, there are companies such as IBM, Hewlett Packard and Nokia whose revenues and Marketing Capitalisation are at a very similar level. IBM have a Market Capitalisation 2 times that of their revenues, HP have a Market Capitalisation of just 1.2 times that of revenues and Nokia have the same ratio as IBM. These huge companies were all once in the same position as Facebook, Google and Apple so it just shows the shift in brand power.  For example, Nokia’s Market Capitalisation has fallen from $150 billion to $14 billion in just 5 years, showing how much the brand has diminished in value and the lack of willing investment into the brand.

For the last decade Microsoft have been valued higher than Google, but finally Google have managed to overturn the power of Microsoft. Ultimately, Microsoft are falling behind and Google are finding new niche’s on the internet and exploiting them. The way technological companies now much run is changing, due to the ever-changing global environment.

Getting there first is everything, which is something Facebook, Apple and Google have all achieved, as did IBM, Nokia and HP, but the way companies now play the market has changed, so it is imperative they adapt. Innovation is the key.