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Unit 1 - Exploring Business
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Business BTEC level 3
Unit 1 - Assignment 3
Learning Aim E
Learning Aim E - Investigate the role and contribution of innovation and enterprise to
business success
Introduction:
The business I have chosen to investigate the role and contribution of innovation and enterprise in the
success of the business is Tesco PLC. Tesco is a multinational retail company with over 450,000
employees and 6800 stores worldwide. Tesco is a public limited company meaning that their shares
are available to buy on the stock market which are currently sold at 245.70 GBX and have a market
cap of £24.06B. Tesco are also the largest supermarket chain in the UK, holding 28% market share
making them the market leader as their closest competitor, Sainsburys holds 16% market share,
therefore innovation and enterprise pays a massive contribution to the success of the business and in
this document I will identify, analyse and evaluate the roles of enterprise and innovation.
Explore how innovation and enterprise contribute to the success of a business (E.P7)
Also part of M5 as I have included a small analysis of how successful the
innovation/enterprise was:
What is innovation?
Innovation in markets is where businesses come up with new ideas that will positively benefit them
and boost their value. Innovation is a way for businesses to ‘out-do’ their competition to gain market
share and lead the market, but is also used to increase business efficiency thus increasing profitability,
increasing reputation and differentiating themselves from the current competition in the market. There
are 3 main types of innovation;
Product innovation - This is where businesses develop goods that had not existed in the market
before or altering an existing product to improve it
Process innovation - This innovation is regarding the process of production and how businesses can
make the process more efficient by using new techniques or new production processes (of existing
goods/services). This also includes the distribution method of getting the finished product to the
customer, for example changing from petrol powered vans to electric powered vans.
Service innovation - This is changing the way a service is provided, for example digital services
using better/newer platforms
However for these innovations to be successful the given business needs to have a deep
understanding and have a high budget on finding customer needs and wants to make sure if
customers are looking for innovation or new features/products that would benefit them and they would
gain more utility (satisfaction) from. If businesses do not do this then it may be very costly or difficult to
design/improve the product to make it appealing to the customers, and failure will be very costly. The
business will also need highly experienced and dedicated staff to find the problems with the existing
products/processes and then develop a strategy and a solution to them. The ideas for innovation may
not just come from inside the business (managers, employees R&D), it may come from outside the
business such as suppliers, media, study groups like universities and market research companies or
even the customers themselves.
,Innovation matrix:
An innovation matrix is a visual representation/visualisation of the 4 main aspects of innovation. This
is a structure and tool that businesses use to classify their innovative ideas and filter them into actual
profitable goods,services or processes.
Some ways businesses can improve their efficiency:
Kaizen:
This is an approach that businesses use to continuously introduce small incremental changes and
improvements into a business, this may improve quality, efficiency of profitability. This whole approach
relies on employees to be creative and to identify small but specific and valuable
changes/improvements that they could make. Kaizen may be on an individual level including one or a
couple of employees or it may run in Kaizen groups where there is a mixture of employees who
identify specific improvements. These changes are less likely to be radically different as they are
coming straight from the employees.
Intraprenuership:
This is where an employee is allowed to act as an entrepreneur but in an already established
business. The intrapreneurs will be self motivated, proactive and motivated as they are being creative
and using their own ideas. This may be achieved through giving the employees personal projects that
they can work on.
,Research & Development:
R&D breakthroughs can help differentiate products and differentiate businesses in crowded markets,
allowing them to gain a competitive advantage. This may include adding more features or improving
the product to add value to the product (USP. the R&D department may find a new more efficient way
to promote their product which could reach a more specific target market or appeal to them in a more
specific way.
Benchmarking:
Benchmarking is crucial for businesses to improve efficiency and profitability because it tests how well
the business is and will expose any weak points so that they can be improved. Benchmarking is the
process of measuring a businesses performance (through goods, services or processes) which gives
businesses internal opportunities to improve.
7 ways Tesco have been innovative and how it aided their success:
Firstly the definition of ‘successful’ in business terms is for a business to provide value to all of their
shareholders, whether that be through dividends, earnings per share (EPS) or a high share
price.
RFID chips:
An RFID chip/tag is very similar to a barcode that can be read with a scanner/reader however the use
of the RFID chips have a much larger scope because they are much more durable, can be placed
inside products and are much easier and quicker to scan than a normal barcode. Tesco’s
implementation of RFID chips into their supply chain was an example of process innovation, this is
because Tesco are not changing/adapting or bringing out a new product, they are innovating and
improving the preexisting processes used to supply and distribute their products to the customer. This
innovation benefitted Tesco because it allowed them to more accurately track their stock inventory in
their warehouses to an accuracy of over 98% and this meant that they were able to reduce their out of
stock levels by 95% and also made it easier and quicker for staff to check the stock levels. This meant
that Tesco could more accurately and efficiently order from their suppliers to make sure that the
shelves on the shop floor were full so that customers' needs and wants were met. The RFID
technology also benefited them as it made theft much harder, boosted efficiency and greatly reduced
inventory costs. This innovation aided Tesco’s success for the main reason that it offered a
comprehensive omnichannel service which increased customer satisfaction and shopping experience,
so this innovation not only reduced the costs of the process but also increased sales and brand
loyalty. In conclusion this innovation carried low risk because RFID chips are inexpensive and very
easy to use and implement. This innovation was successful because Tesco has now introduced them
into 300 stores/warehouses as of 2016 and they have ordered over 200 million RFID tags from SML.
, Self Checkout:
Tesco has made multiple innovations in the self checkout machines. The first being the initial
introduction of the self checkout in 2003 and they were the first supermarket chain to implement this
into their stores. Tesco identified that customers wanted a more seamless and quick, it also allowed
the customers who only shop for a few items a lot happier because it meant that they didn't have to
queue in large lines just to purchase their select few products. This innovation also made Tesco more
efficient because it reduced their costs as although the initial cost of the self checkout machines
greatly exceed the cost of paying employees to bag customers products, in the long run it turns out
that it is much cheaper for customers to do their own bagging and pay for themselves with little to no
assistance, so it made sense for Tesco to do this as it increase many customers shopping experience
but also aloud Tesco to reduce their costs, congestion and meant that they could serve more
customers per hour. This innovation was an example of product innovation as there were no current
self checkout machines in the market before and Tesco was the first to introduce them. Therefore this
was innovative because it improved customer satisfaction and the profitability of Tesco making them
more successful because it helped grow the business further and gave more value to the
shareholders. Another innovation of the self checkouts in Tesco is that they are now trialling
(December 2020) self checkout tills that are big enough and are compatible with trolleys so that more
customers are able to use them and it further reduces the long term cost of paying the wages of
employees who are on the tills. This is an example of product and process innovation because Tesco
have improved a pre-existing part of the customers shopping experience but also the process
because it further reduces cost and the need for staff. Overall the original innovation of self checkout
machines was very successful mainly because Tesco were the first to do it and they gained a good
reputation and increased sales from it but also because it was a gateway for future technology to be
adopted by the business. However the second innovation of the self checkout machines (extended to
fit trolleys) was a success in reducing costs and making the process more efficient however many
customers and employees are outraged because this further decreases the need for Tesco having lots
of staff as self checkout machines essentially replace the employees and therefore many people are
fearing for their jobs and have low job security which may affect their productivity and the quality of
service provided to the customers. In conclusion the introduction of self checkout machines has had a
big role in Tesco’s success because it was 39% faster than non-self service isles and was ‘10 times
cheaper’, meaning that more customers could be served and more product could be sold which
increases Tesco’s revenue and profit allowing them to reinvest it into other innovative projects.
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