Innovation Audit: Examining Tesco's History, Performance & Future

This report conducts an innovation audit of Tesco, a major player in the retail industry, to evaluate its innovation history, current performance, and future strategies. The audit covers Tesco's evolution since 1919, including key innovations like the Everyday Value range and the Tesco Red Door initiative. It analyzes the company's market share, competitive positioning using Porter's Five Forces, and internal capabilities through SWOT and VRIO analyses. The report identifies Tesco's strengths, weaknesses, opportunities, and threats, along with its valuable, rare, inimitable, and organized resources. It concludes by highlighting the importance of continuous innovation in supply chain and personalization to meet consumer demands. The report suggests areas for improvement and strategic alignment in the dynamic retail environment. Desklib provides access to this and other solved assignments for students.

Innovation in Business
(Distinction Criteria)

EXECUTIVE SUMMARY
The report summarises that innovation in business comprises improvement of existing
practices or methods and starting from scratch. With innovation, organisational managers
execute new ideas, products and processes to boost bottom line. Tesco is giant company in retail
industry which innovates its offerings as per market needs and choices. Aim of the report is to
conduct innovation audit for the enterprise that examines past events, current and future actions
as well as capabilities. Tesco is recommended to undertake essential innovations in supply chain
and provide personalisation for meeting demands of consumer.
The report covers overview of company and its innovation history. It further discusses
existing capabilities and performance together with industry in future.

Contents
EXECUTIVE SUMMARY.............................................................................................................2
Contents...........................................................................................................................................3
INTRODUCTION...........................................................................................................................1
ORGANISATION AND INDUSTRY OVERVIEW......................................................................1
Organisation and its innovation history.......................................................................................1
Organisations existing innovation performance along with capabilities.....................................2
Industry in 2021...........................................................................................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Innovation in business allows managers to add value in order to enhance profits and staying
ahead of competition. In a company, innovation takes place by developing more effective
processes, art works, products, technologies or business models which innovators make available
to society, markets along with government (Brem, Tidd and Daim, 2019). The purpose behind
preparing the report is to conduct innovation audit of a business for examining its history,
existing level of activities of innovation and upcoming innovation. To understand about
innovation in business, Tesco is taken into consideration. The company was built with mission to
become champion for target audience,
The report covers an introduction of company and its innovation history. It also
highlights the organisational current performance of innovation and capability as well as industry
in 2021.
ORGANISATION AND INDUSTRY OVERVIEW
Organisation and its innovation history
Introduction of company
Tesco is popular company performing practices in retail industry since 1919. It is
specialised in general merchandise as well as groceries (Tesco, 2022). Vision of the enterprise is
to become most valued business by communities, customer, shareholders and colleagues. Key
offerings of Tesco includes clothing, software, books, toys, electronics, telecoms, internet
services, furniture and financial services. It has experienced innovation history through
transforming offerings in last few years.
Figure 1: Industry verdict: Tesco was right to ditch Value range. 2022
(Source: Tesco was right to ditch Value range. 2022)
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The above image states that Tesco has unveiled Everyday Value range for the purpose of
replacing its 20-year-old value sub brand (Tesco was right to ditch Value range, 2022).
Organisational managers make relevant investment decisions so to innovate products and
services of Tesco. In Tesco, managers work with product innovation strategy in which they
create winning products that are attractive in target market, addresses unmet needs along with
assist customers to get job done despite of competing solutions.
Innovation history of company
Tesco was established in 1991 at Hackney, UK. By 1939, the company expanded rapidly
by having approximate of 100 shops across the nation. The company brought innovation of
Checkout 82 in which its prices were cut by among 3% and 23% on nearby 1500 food items in
1982. By 1990s, the corporation expanded in nearby 11 countries on the globe and diversified in
areas comprising books, petrol, telecoms, electronics, internet services and hence forth. It also
launched own brand healthy eating range at affordable prices (Innovation history of Tesco,
2022). In 2001, Tesco brought Florence & Fred which was its innovation in clothing for
customers.
In the year 2012, new Everyday Value range was launched for replacing values of the
retailer. The innovation emphasis on key areas entailing providing healthier options for
customers, quality and packaging improvements in order to assist customers to identify product
on shelves (Wei, Thurasamy and Popa, 2018). In September 2020, the organisation launched
Tesco Red Door that is new approach to disruptive innovation. With this, Tesco invites
innovators with new ideas, commodities and emerging technologies for causing disruption in
future.
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Figure 2 Comparison between market share of Tesco and other supermarket. 2022
(Source: Comparison between market share of Tesco and other supermarket. 2022)
In accordance to above statistical image, it is concluded that market share of Tesco
against other companies in last year was around 27%. Against Tesco, market share for same year
of Asda was nearby 15%, Morrisons was 10%, Aldi was 7% and so on (Comparison between
market share of Tesco and other supermarket, 2022). Discounters Tesco and Lidl continued to
expand their reach, with both expanding their market share to 8% and 5.6% respectively in the
period.
In global business environment, there are ample number of factors that impact innovation
of business. For Tesco, professionals apply PEST Analysis so to determine impacts that factors
of macro environment have of innovation of company (Moura, 2021). Mentioned below are
factors of PEST Analysis in relevance to Tesco:
Political factor: Within UK, political environment is stable that helps businesses to
contribute in innovative something new. For instance, political regulations in UK support
decision making of Tesco to bring innovation in offerings as well as commercialise them
globally.
Economic factor: In UK, production factors are available easily to company that aids in
product innovations (Erdogan, Rondi and De Massis, 2020). For example, HR manager of Tesco
employ larger number of talents at cheaper rates to bring innovation in processes and products.
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Social factor: High level of social standards in UK results in better all-around situations
for organisations (Edinger-Schons and Et. Al., 2019). For instance, taste and preferences of
customers assist Tesco to analyse demand for innovation and earning higher profits.
Technological factor: Technology is UK is expanding around 2.6 times faster than rest of
countries on globe (La Ode Sumail, 2019). In Tesco, investment in technology is continuous for
developing innovation in Omni channel customer experience as well as maintaining competitive
edge in enhanced digitalised grocery landscape of UK.
Organisations existing innovation performance along with capabilities
Innovation performance and capabilities is potential of enterprise to transform inputs of
innovation into outputs, innovation capability addition to efforts into implementation in market.
For Tesco, outcomes of innovative performance are success of innovation in market. For
analysing existing innovation performance of Tesco, managers apply certain concepts and
models that are as follows:
SWOT Analysis
The model identifies areas of success factors of company that gives competitive benefit
(de Vasconcelos Gomes and Et. Al., 2018). Within Tesco, application of SWOT Analysis guides
managers to summarise issues or challenges based on strategic capabilities which influence
development of innovation strategy. Below is SWOT Analysis of Tesco for assessing innovation
performance:
Strengths:
 Product portfolio of Tesco is strong
that aids in driving segments and
tackling competition.
 The company holds patents together
with patent license for innovations in
core practices.
Weaknesses:
 Tesco faces certain legal issues addition
to lawsuits that hurts image of the
brand.
 For preventing shortages because of
panic purchase, the company is
rationing few of its products (Ferraris,
Bresciani and Papa, 2018).
Opportunities:
 Tesco has opportunity to use artificial
intelligence as well as machine
learning for the purpose of predicting
Threats:
 Changes in global environment affects
innovation performance of Tesco
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addition to delivering street level needs.
 The retailer can add additional features
in products along with comply with
legislation
adversely.
 Fluctuations in retail industry of UK
is a threat for Tesco.
 Fierce competition from players, such
as Asda, Morrisons and hence forth in
retail sector.
Porters five Force Analysis
The tool identifies along with analyses competitive forces which shape an industry
(Milani, 2019). For Tesco, application of Porters Five Force Analysis is as follows:
Competitive rivalry: Under this force of Porter's five forces existing competitors of the
company in industry are analysed. There are various rivals of Tesco such as ALDI, LIDI, Asda,
Waitrose, etc that creates competitive rivalry high for the company.
Bargaining power of customers: If an organisation is having less number of buyers and
price of its products is very high then it can result in bargaining of them. Tesco is a large
company and it has end number of buyers. Bargaining power of customers for the organisation is
very low due to because its provides good quality products and services to them.
Bargaining power of suppliers: When there are lower number of suppliers then they
bargain and sell products on high prices along with in opposite condition they sell goods on low
price. Within retail industry, Tesco have end number of suppliers in UK and out of UK which
helps to decrease bargaining power of them. Bargaining power of its suppliers is low which is
beneficial for company as it can buy goods on low price from them.
Threat of new entrant: In retail industry, markets which are generating high profits
attracts new entries in market and result in competition. Threat of new entry is very low for
Tesco which can help it to generate higher profits and competitive advantage in retail sector
Threat of substitutes: Organisational offerings that could be used on the place of other
are known as substitutes (Adelakun, 2020). All large companies in retail sector have a threat of
substitutes which are small grocery shops that are selling such items that are same as
supermarket's goods on low price. For Tesco, it is moderate because brand loyal customers do
not switch but other clients can try products from grocery or departmental stores.
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Resources
Organisational resources are delineated to all kinds of assets which are with a company
for completion of production process. In Tesco, resources are combined, utilised addition to
transformed into innovative products in production process and accomplish goals. Mentioned
below are certain resources of Tesco:
Physical resources: Tangible items used in business operations are physical resources.
Physical resources of Tesco include machinery, raw materials, buildings and facilities which are
available in approximate of 12 countries.
Financial resources: A term which covers all categories of financial funds of company
are financial resources. Available financial resources with Tesco in 2021 are revenues of £57.887
billion, net income of £6.147 billion and operating income of £1.815 billion (Tesco PLC Annual
Report and Financial Statements 2021, 2021.).
Human resources: Set of people which makes entire workforce of an establishment are
human resources. In the year 2021, Tesco employed around 367361 human resources in which
most of them worked in UK and Republic of Ireland that counts 336392 employees.
Intellectual capital: Value of organisational employee’s skills, knowledge, training and
other proprietary information which provide competitive edge are intellectual capital. In Tesco,
intellectual capital is in form of business systems, customer databases along with copyrights.
Strategic capabilities
Competences and resources which an entity uses for competing in business environment
is said to strategic capabilities (Santoro, Ferraris and Winteler, 2019). In context to Tesco,
analysis of existing capabilities is done through VRIO Analysis which is a concept used to
evaluate business capabilities for competitive advantage. VRIO Analysis for Tesco is
underneath:
Capabilities Valuable Rare Inimitable Organised
Human Resources ✓ × × ×
Intellectual capability ✓ ✓ ✓ ×
Financial resources ✓ ✓ ✓ ✓
Physical resources × ✓ × ×
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Valuable: A valuable capability assists organisations to implement innovative strategies
which improves efficiency and effectiveness. For Tesco, valuable resources are human resources,
physical resources, intellectual capital and financial resources. Financial resource is valuable for
Tesco as it assists in making investment in extrinsic opportunities which arise and combating
threats. Within Tesco, human resource are valuable as they contribute in more productive outputs
for enterprise. Intellectual capabilities belonging to Tesco are valuable as they add values to
business through enabling it for seizing opportunities or defencing against possible threats.
Rare: A rare capability gives businesses an important edge over rivals. It is because
businesses are able to deploy the capability along with execute value creating tactics that are not
with competitors (Kohli and Melville, 2019). For Tesco, rare capabilities are intellectual capital,
financial resources and physical resource. In Tesco, intellectual capital is rare because such
capability are not easily possessed by rivals. Physical resources of the retailer are rare as through
this, manager emphasis on innovative solutions and devise unique strategy for market
penetration. Financial resources of Tesco are rare capability as it took huge years to make the
revenues that other ventures fail to earn.
Inimitable: An inimitable capability is expensive for competitors of company to replicate
or imitate. In association to Tesco, inimitable resources are intellectual capital along with
financial resources. It has been determined that financial resources of Tesco are acquired through
prolonged profits over years that makes them inimitable capability. Moreover, intellectual
capability available with Tesco are difficult to imitate by other retailers as it is not legally
permitted to imitate patented commodity or process. Inimitable capability of the company
possesses all right ingredients for attaining sustainable competitive benefit.
Organised: Organised capability reflects whether the company have internal, systems,
processes along with structures for exploiting advantages in competition (Hinterhuber, Vescovi
and Checchinato, 2021). In Tesco, financial resources are well organised for the purpose of
capturing values and making rational investment decisions and combatting threats.
Industry in 2021
Retail industry of UK entails more than 300000 separate business. It includes all types of
practices involving sale of offerings through an establishment directly to consumers which are
purchased for family or personal use. In retail industry, giant players are Morrisons, Marks &
Spencer, River Island, Sainsburys, H&M, etc that dominates the sector. It have experienced
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influences from ample elements domestically and internationally. Investment in omnichannel
retail tactics is future of retail industry. It has been determined that average digital consumers
owns around 2.64 connected devices together with tends consultation before making purchase
(Tueanrat, Papagiannidis and Alamanos, 2021). For Tesco, adoption of mobile shopping in
innovative manner is essential as with this, the company is able to create unique shopping
experiences for target audiences in seamless and free of friction aspects. Through this, company
can provide consistent journey to customers from exploring buying alternatives to making
comparison of products and services.
Retail industry beyond 2021 has huge chances of having personalisation. In retail field, it
involves giving consumers suggestions on the basis of taste, location, previous researches and
many more. In relevance to Tesco, operating with personalisation has chances to impact
positively in order to develop streamlining processes of shopping. The era of 2021 and more has
chances to bring unprecedented changes across the sector resulting to potential changes in
decision making of target audiences for shopping (Kim, Wang and Roh, 2021). It is essential for
department heads and other professionals of Tesco to prepare for continuous adaptation to
changes with the hope of achieving and maintaining competitive edge in 2021 or beyond.
Within retail industry of UK, certain factors of macro environment impacts on
performance of businesses operating in it. At present, COVID-19 impacted adversely on decision
making of purchase and saes of retail commodities. In contrary, changing disposable income of
consumers impacts on sales volume of retail offerings (Herbert, Robert and Saucède, 2018). For
the purpose of achieving sustainable competitive positions in retail industry 2021 and beyond,
managers of Tesco are recommended to build great insights about changing patterns of consumer
demand and frame rational decisions for influencing consumers for making purchase of
offerings. Furthermore, the retailer is recommended to make essential innovations in supply
chain so to meet choices of end consumers. E-commerce friendly POS System, cashier free and
staff free stores, machine learning to predict demand, etc are some innovation opportunities to be
grabbed by Tesco in retail sector in the year 2021 and beyond. With focus towards adopting to
the innovation opportunities, it is possible for Tesco to manage technologies in offerings addition
to attain first mover advantages for future sustainability.
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