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The market is characterized by cut throat price competition Companies can survive in a highly competitive market by either trying to win the price war or seeking to procure competitive advantage by rapid innovation not only in their products but also in their processes
Technology and lifestyle trends may lead to the creation of new customer needs that are not being catered to. Innovative products or services can be used to capture these new markets and obtain competitive advantage for the company
Innovation in processes can be used to lower costs and make processes more efficient. This also translates into lower prices for customers
Tesco and Innovation in the past.
When it comes to innovation Tesco one of UK's leading food retailers and the third largest retail organization in the world has always been on the forefront. Innovation became a prominent part of the company's strategy in the 1990s . This decade witnesses the retail giant initiating a number of unique projects that helped increase both profits and build competitive advantage . These included the launch of a new brand of stores focused on meeting the needs of city shoppers known as Tesco Metro and Tesco Express of a series of convenience stores located at petrol stations in the UK. (TescoPlc.com, 2011)Tesco was also among the first few supermarket chains in 1995 to introduce the club card which offered heavy discounts to loyal customers. In 1997 the supermarket chain took a unique initiative and entered into a co-operative venture with the Royal Bank of Scotland to offer specialized financial services to its customers. (Tescoplc.com, 2011) It was one of the few supermarket chains to offer in store banking so that customers could fulfill both banking and grocery shopping tasks under one roof. Facing saturation in domestic markets Tesco decided to implement a new innovative strategy and seek new markets abroad by starting international operations. Since then the company has achieved massive growth in its international operations throughout Europe and the US.
In the new millennium Tesco continued its innovative drive by launching Tesco.com. The website was aimed at catering to the internet savvy customers and was a success right from the start. The company also started diversifying its product lines by focusing on increasing non food and branching out in retailing new products such as CDs and DVDs. In 2001, the company forayed out of European and Asian market and launched operations in the US. In the latter half of the decade company continued its innovative streak by introducing a online retailing product known as Tescodirect where customers can now place orders online and then pay extra for the orders to be delivered to them.. In 2010 Tesco achieved another series of firsts by launching the country's first drive through super market. Consumers can now drive up to a special area known as "click and collect" and pick up their pre-packaged orders placed online. This new initiative was designed to cater to the needs of busy mums who could easily pick up essential groceries when managing children's activities and school runs. (directtesco.com, 2011)
Tesco has a long and established history of introducing innovation not only in its products but also its processes. The objectives of using innovation in processes are to reduce operational costs and translate these savings into lower prices to consumers. Some innovative processes that Tesco has used in the past include
setting up automated self checkout counters which customers can use to check out groceries themselves.
eliminating middle men and brokers in the distribution process.
negotiating generic products at discounted rates with whole sellers and selling products under the retailers own brand name at a lower price
The use of these innovative process has resulted in reduced costs and improved efficiency which in turn has enabled the company to keep prices charged to customers low. In 2007 Tesco managed to deflate prices by 1.8 % across all its product lines as a result of innovative processes employed
Innovation is a key factor in Tesco's success in the retail industry. However it is not a phenomenon that can happen on its own. To be successful Innovation has depends upon three crucial factors, the Organization, people and Strategy . Let us examine each one in detail.
Different organizations adopt different policies towards innovation. In some organizations the function of innovation is managed by the Research and Department. This is a separate wing whose only job is to come up with new products and services for the company to sell. However at Tesco the approach to innovation is different. It is the staff and the customers that contribute to innovation. The company does not have a dedicated research and development department. All the ideas come from the people who sell the company's products and the people who buy them
Innovation is part of the overall strategy that management adopts to achieve its goals. For innovation to be successful it must meet the desired objective. It should also be a strategy which is implemented from the top and across all sections of the organization. The strategy should take into account the various resources has at its disposal. It should not only be a management decision but also a complete management process which involves organization planning and administration. When developing a marketing strategy it is essential to examine both the inherent capabilities of the company as well as the external factors influencing the industry and the organization These include factors such as competition, changes in laws and regulations and the advent of new technology. Smooth implementation of the company's strategic plans requires that factors in both the internal and external environment factors be closely examined and evaluated using specific analytical tools
Innovation should focus not only on plans and processes but also its people. A company's employees are often responsible for the success or failure of its strategies. Therefore for the innovation strategy to be successful at the management level it should be supported by staff at all levels . Staff as compared to management can contribute valuable input to identify innovative products and processes Tesco follows a culture of innovation where its employees are encouraged to brainstorm and come up with new innovative ideas. This focus on creativity in thought and coming up with new ideas to improve products, services and processes is implemented across the board. Everyone from top tier management to the checkout clerk are encouraged to give suggestions and ideas. In fact speaking out and suggesting new ideas has now become part of the company's culture.
An organization may have formulated the objective of enhancing their customer experience as an integral part of its corporate strategy. However existing processes may be slow and tedious resulting in longer waiting times and causing greater frustration to the customer. Innovation puts a pivotal focus on adopting processes that are geared to meeting an organizational goals and objectives. An Organization's processes pertain to the manner in which work is structured and the firms resources are used to deliver the product or service to the customer. There are four essential functions involved in innovating a process. These can be described as follows
Search for a process where innovation can result in reduced cost, time or customer satisfaction. This process may occur at various stages including purchase distribution and sales. It can either be a manual or electronic process to found across any of the product lines offered by the company . When searching for a process several choices can be made. However only one can be chosen since innovation does result in investment of the company's resources and is an expensive procedure.
When the selection is to be made between a number of processes customer preferences and corporate social responsibility should also be kept in mind in addition to cost reduction and efficiency For example one innovative process that the company has to select from involves eliminating the use of plastic bags to package groceries at the checkout counter. Instead they will be replaced with specially designed grocery bags made out of cloth which are both environment friendly and reduce the cost of producing and buying plastic bags for all its stores. This measure will please the increasing number of environment friendly customers and also improve the image of the company as a socially responsible organization. Therefore selection of this process will bring not only monetary gains but also non financial gains such as goodwill and trust
Implementation involves breaking this process into step by step tasks which are measurable and can be modeled and improved. These work processes can also be charted into process flows or activity charts to denote how much time is taken to complete a particular task. Where the task is lengthy or results in wasteful allocation of the company's resources the task can be re-designed and the process changed to achieve organization's objective or greater efficiency. This is perhaps the greatest functionality of Business Innovation -the ability to eliminate and re-design essential processes to achieve greater productivity, lower costs, improved speed and a higher level of service.
In implementing innovation while the change in a particular sub processes may achieve improvement in the time taken to complete the task or reduce a wasteful process, it is essential that to achieve overall improvement in the value or service the entire process should be re-designed. Thus innovation can be used to achieve both purposes, improvement in processes where the focus is to improve sub-processes and increase in the value of the Firm's product or service where the focus is on re-designing the process.
This involves the capture of feedback which has resulted from the implementation of the process. It could include reduction in costs, increased sales, saving time, positive response from customer or the generation of overall goodwill for the organization. Some of this feedback can be measured in terms of dollars and time while other has intrinsic value which cannot be measured.
When analyzing the factors which are crucial to the successful implementation of innovation in Tesco it is important to consider the following critical evaluation points.
Innovation decisions at Tesco will only be effective if they accommodate the Organizations need and objectives. (De Wit & Meyer 1998) If it is implemented on a generic basis without considering the Organizations specific needs it will end in colossal failure. Therefore management should not view it as a one size fits all best practice approach which is applicable to all situations. In the case of Tesco the company's main objectives include establishing competitive advantage and increasing international market share. Its strategy of seeking markets overseas for example in nations such as India and Eastern Europe is in conjunction with these objectives. The implementation of this strategy will therefore help increase both the Company's profits and its overall corporate image.
Effective strategic decisions involving innovation should take into account customer trends and preferences. (Fred 1995) The use of mobile technology to access the internet is a upcoming trend which is expected to dominate online retail practices in the near future. The innovative strategy to develop applications which allow mobile users to conduct Tesco transactions with ease caters to this trend and seeks to attract this growing breed of customers..
The implementation of innovative decision making is heavily reliant on employee performance. Management can make decisions and set goals but without staff input and performance these goals will be rendered useless and in-effective. (De Wit & Meyer 1998) It is very important to train, motivate and communicate with staff in order for managerial decision making to be effective. It is also essential to have clearly defined organizational practices such as reward and recognition procedures to value employee contributions. This will also encourage team-work and creativity to foster more productivity.
It is important to understand the cultural implications of a innovative product or process in a particular country or environment before adopting it. (Griffin, and Pustay, 2006). Certain innovative procedures can be adopted in one country and not in another because of cultural differences. In certain countries such as Saudi Arabia and the UAE it is customary practice for supermarkets to give free door to door delivery. Thus products such as "click and collect" or an "online supermarket" would not be very effective because competitors are already meeting customer needs met by receiving orders on the phone and having them delivered without any extra cost. Therefore to be successful in this market Tesco too would have to take orders by phone and deliver it free of cost. This is not a service however that it offers in UK and would have to adjust its prevailing processes to cultural practices. It is imperative therefore that Tesco conducts a detailed cultural analysis in order to understand and adapt to the country's cultural complexities.
In certain scenarios innovation may be driven by environmental factors such as the onset of the global recession. The retail sector is particularly prone to the effects of the recession which has resulted in massive job losses in US as well as Europe and this has significantly reduced the disposable income of individuals and families. As a result customers have reduced their expenditure on commodities including food and general merchandise. In such an environment customers are attracted by low prices. Innovation in this scenario should focus on making more processes more cost effective and efficient.
For innovation to be effective it must be continuous. One approach which does not work is implementing innovation as an isolated one time only project with limited focus on long term strategy and perspective. Business Innovation is a comprehensive ongoing process which should be evaluated and re-implemented on a regular basis to ensure that processes remained aligned to the organization's objectives which might fluctuate in the long run due to its growth or changes in organizational structure.
Tesco extends its culture of innovation not only to its employees but also to its customers. To understand what they want to be improved Tesco must make an effort to understand its target market. The company should undertake market surveys to gauge how customers feel about their products. Consumer's preferences and needs must be taken into account to alter the product or process. A brain storming session can also be arranged for a panel of random customers who can be compensated for their time and opinions. Customers feedback can then be used to alter products or processes which they are not satisfied with
Research Based Innovation. For innovation to be successful it must be based on careful research of the proposed innovation. Before implementing a process it is important to conduct either primary or secondary research on it. For example before opening the click and collect drive through store Tesco conducted a lot of information and suggestions from customers through primary research.. From the results the company discovered that many people who ordered online preferred to pick up the delivery themselves rather than pay the extra fee for delivery. It is from this research that they arrived on the decision to set up the new drive thru or click and collect supermarket. The research can be carried out either by the company itself or through a contractor
The implementation of the innovation process might be viewed unfavorably by employees as they feel that the company might use the statistics gleaned from the exercise to identify and eliminate those workers who don't meet the required level of efficiency. Though this concern is valid it may not necessarily hold true in all innovation implementation scenarios. An important component critical to the success of the innovation implementation is the human factor. Before the implementation of the innovation process many employees harbor the fear that the new system will result in job cuts and may make them redundant. Though this fear is natural it can lead to dire consequences if not met with re-assurance from the employer.. An employee who feels disgruntled with the innovation implementation might be willing to corrupt the system by feeding an inaccurate account of processes. It is essential therefore that Management dispel this fear by meeting with employees and re-assuring them that their contributions will be valued and that they will not face the axe as the management still needs their knowledge of the organization's processes in order to re-design and re-structure them in an efficient manner (Gibson, 2003)
There are certain political factors which may facilitate the development of an innovative strategy. The integration of more countries in the EU and the negotiation of more Free Trade agreements with former countries of Eastern Europe has opened up more opportunity for British retail companies to set up operations in these countries. TESCO already has a strong presence in Hungry and other retailers are also considering establishing a presence in East European Markets.
Tesco has achieved success with the implementation of many innovative products and procedures. However there were many innovative strategies which have resulted in failure. This includes the company's foray into North America. In 2001 when the company entered North America to escape a saturated UK market it did not take into account that the US market was saturated too and that it was very diverse in nature to the US market. By 2010 the company's US operations were making severe losses and its innovative attempt to set up a new retail chain had resulted in failure. But this has not stopped the company from seeking other global markets such as China or India. Both China and India have a huge retail market and the company stands to make a great deal of profit if it manages to successfully set up operations in these markets. Though emerging economies such as China and India have been affected by the recession the size of the retail markets is large enough to sustain these effects and still be buoyant and retain demand.
Innovation in its products and processes has now become one of Tesco's hallmarks. It has become a part of the companies intrinsic and extrinsic culture . Stakeholders including management employees customers and shareholders now rely on this culture of innovation to sustain the company's growth and profit. The model of successful innovation created by Tesco is now a successful precedent for all other emerging retail organizations. As part of its innovative endeavor Tesco is now focusing on enhancing the customers shopping experience. This includes using televisions inside the supermarket to advertise products, and making online interfaces more user friendly and easy to negotiate.
To achieve a successful implementation of innovation it is essential to create an appropriate environment. This environment will seek active input from employee and customers, design a clearly defined strategy that supports the firm's commitment to innovation and institute organizational practices such as reward and recognition procedures to value employee contributions. It will also encourage team-work and creativity to foster more productivity. An emphasis will also be placed on decentralization of decision-making activities and granting a certain degree of autonomy at lower levels so that employees have more freedom to innovate processes. This should be counterbalanced by a series of channels which facilitate input from customers. These could be customer panels, surveys, focus groups and brain storming sessions
The implementation of the innovation strategy is more than just a technical adaptation at Tesco It is a concerted management initiative that requires considerable financial investment to re-design processes in line with Organizational Objectives. The successful implementation of innovation will not only result in faster and more efficient processes for the Company it will also increment the value of the goods and services produced by the Organization and create competitive advantage in the industry.