Executive Summary
Innovation is an inherent part of every business that wants to stay profitable. To maintain continuous improvement strategies, companies have to understand why change is necessary and how one can encourage it. The examination of the retail industry in the UK is performed using such concepts as 4Ps, Hofstede’s dimensions, Porter’s 5 Forces, and PESTLE.
The discussed example is Sainsbury’s – one of the most popular supermarket chains in the country. Such opportunities as the sustainability focus, merger, and online distribution are investigated using the results of the external (environment) and internal (employees) factors’ analyses. The report assesses the current projects of the company and proposes possible changes to their strategy. In this case, the potential challenges of maintaining a high rank are connected to the increasing threat of substitutes and the rapid technological advancements in online-shopping.
Introduction
The world continuously changes and evolves because of people, their ambitions, knowledge, and experiences. To stay relevant, profitable, and sustainable, businesses have to innovate at a similar pace, introducing new ideas and concepts and supporting or even creating new trends and ideologies. Companies that are currently on the top of most lists can quickly lose their position if they fail to stay interesting to their primary stakeholders – customers (Nagji & Tuff 2012; von Stamm 2008). Therefore, innovation becomes a concern that no organization can ignore. However, the development of an effective strategy poses a challenging task before corporations, especially if they do not possess an already established system of continuous improvement.
To analyze an example of a large national organization, one can look at Sainsbury’s – one of the most prominent supermarket chains in the UK (Aluko & Knight 2017). It was founded in 1869 and remained a leader in the sphere of food retail for years, before being overcome by another competitor, Tesco (Aluko & Knight 2017). Nonetheless, the corporation continued to grow and evolve, eventually turning into a combination of three major branches – Supermarkets, Argo, and Bank (J Sainsbury plc 2018).
Sainsbury’s Supermarkets and Argo constitute a chain of supermarkets and outlet stores in the UK, while Sainsbury’s Bank is a financial organization that provides loans, mortgages, and other services. Currently, the company is also in the process of merging with Asda, another retailer functioning in the same industry sector but different regions – this merger could significantly shift the position of the business and make Sainsbury’s the most prominent supermarket corporation in the UK.
The variety of directions that Sainsbury’s pursues with its branches and developments creates a difficult task for developing a plan of future innovations. To adequately analyze all types of business operations that the company needs to improve, multiple analytic frameworks have to be employed. Nonetheless, the investigation into the UK market and industry situation, as well as customer’s needs and arising trends, can yield several possible suggestions for the direction in which the company should move. The following report will examine innovation theories that may be crucial in choosing the best approach, internal factors including the company’s organizational culture, previous decisions, and leadership, and external factors which may reveal some major opportunities and challenges.
Report
Innovation Theory
First of all, this company, similar to any other, has to evaluate the aspects of innovation that should be considered while designing a specific and active plan for change. Thus, major theories and approaches to innovation have to be reviewed. Moreover, the company must understand the significance of innovation. This concept implies that businesses have to change their practices and strategies to perform better than their competitors and create new niches and groups to which they can market their products.
Innovation is especially relevant today because technological progress and the shift from industrialized to service-oriented societies continue to influence people and their views on consumption and relationships with corporate entities (Anderson, Potočnik & Zhou 2014). The rise of technology and the rapid development of new devices and software affect all operations of a business as well.
Innovations as a whole are driven by the combination of internal and external factors. A company’s internal structure – organizational culture, employees, management, leadership, and other aspects can either support or hinder progress. Similarly, external influences such as competitors, market entry requirements, political situations, legal restrictions, or environmental concerns affect how a strategy has to be created (Burns 2012). For Sainsbury’s, the retail market of the UK is the leading sector in which the organization operates. Its requirements and limitations become the foundation for the analysis. For example, the relationship between Sainsbury’s, Tesco, and other supermarket chains is a part of the external competition that drives all members to develop new strategies. Furthermore, its stakeholders, customers, workers, and directors, play the roles of internal factors. Customer’s needs may change with time, thus creating new requirements under which retailers have to work.
Changes in the way the business operates cannot appear without reasons or operate separately from other processes. Sainsbury’s need to understand that many sources of ideas exist, including its management, employees, and customers (Hartnell et al. 2016). Higher levels of management can introduce innovation based on their previous experiences leading the company. However, workers and clients can also be a helpful source of suggestions based on their direct interactions with each other and different interests related to the company’s performance. On the one hand, employees can propose small or significant improvements in their respective fields based on them encountering problems or learning how to make a process more efficient (Valkokari 2015). In the case of Sainsbury’s, such ideas can come from all levels of workers, from financial officers to cashiers. Another source of innovation is customers, including all established and potential groups.
The company also has to choose which types of innovations it wants to implement. For instance, it can decide to divide all approaches according to their nature. Thus, Sainsbury’s may introduce changes to the existing paradigm, process, position, or products (Malagas et al. 2017). In the first case, a paradigm shift is a different mentality which the organization implements in all operations. Next, the innovation of products implies the addition of goods and services or their alteration. The third option is the change in the company’s processes regarding products’ creation and delivery. Finally, position innovation is a new approach to the way the business presents its goods. These strategies can be utilized separately or together, depending on the scope of the desired change. Moreover, the level of innovation can vary as well – some of them may be incremental (improvement of existing features) or radical (introduction of entirely new ideas).
The mentioned above approaches constitute the major ways to view each segment of the business. The process of designing and implementing innovations also deserves attention, as good ideas are not the only significant parts of change (Miller 2014). The framework of introducing innovations should also involve organizational structure, culture, and readiness for risks (Government Chief Scientific Adviser 2014). The management of the company should have strong leadership characteristics to inspire change and become both an encouraging force and a positive example. Furthermore, the company has to make sure that its culture does not impede change in any way and its employees are contributing to one goal, instead of pursuing their ideas. Finally, the analyses of possible risks and the level of preparedness to mitigate their adverse effects have to be included.
Internal Factors
This area of strategy development includes the organization’s leadership, culture, and structure. In regards to leadership, the company’s directors need to develop strategies using resources and knowledge that they possess or can acquire. Moreover, leaders are people who create the vision for the organization and guide the employees in the correct direction towards the achievement of a single goal (Silverman 1997). To perform these tasks, these leaders have to be influential, charismatic, and communicative, according to the latest definitions. Their managing functions, nonetheless, are also significant to the success of the business. Thus, the combination of these processes constitutes an effective leader (Taran, Boer & Lindgren 2015; Yukl 2010). In the case of Sainsbury’s, the challenge is further complicated by the size of the corporation – it includes a nation-wide network of stores, offices, and other facilities, where each of them needs managing leaders of many levels. However, the main attention is mostly devoted to the upper management of Sainsbury’s, the company’s board of directors, and executive officers.
While some businesses employ an approach that is focused on one highly influential person, others prefer to decentralize the pressure to multiple managing persons. Sainsbury’s plan is closer to the second example, as it mentions a ‘leadership team’ more frequently than posing separate people to the front lines of innovation (J Sainsbury plc 2018, p. 26). Furthermore, its reports state that these groups work to interact with employees and collect their opinions about possible changes and innovations (Collaborate and innovate 2007). This approach shows that the leadership is structured less formally, allowing workers to contribute to the processes (Tidd & Bessant 2009). It also has a positive influence on their performance, raising their involvement in the daily processes. However, the level to which this practice is implemented is highly limited. Therefore, Sainsbury’s innovation model is closer to a goal-oriented structure.
Nevertheless, the focus on organizational culture is seen in the current principles of the business. It creates several incentives for its employees, supports their unique experiences and challenges. For example, Sainsbury’s mentions its inclusivity projects to provide more women and people from ethnic minorities with stable jobs and equal opportunities. Furthermore, ongoing training of employees provides the company with more capable and engaged members. Another detail of the organizational culture lies in the way the business uses language to create a less formally structured and rigid hierarchy. All levels of workers are referred to as colleagues, blurring the lines between the different members of the system. Another project that empowers employees is the Fair Development Fund – a program for farmers and workers from developing states that supports their business through business relations (J Sainsbury plc 2018).
The environmentally-friendly mentality adopted by Sainsbury’s is directed not only towards customers but also workers, encouraging sustainable practices. Colleagues are enrolled in specialized courses that educate them about reducing waste, mindful consumption, and food donations. Thus, employees are encouraged to support a strong culture with clear principles and guidelines (Gawer & Cusumano 2014). This initiative along with feedback networks, continuous education, a range of apprenticeships, and the overall concern for people-oriented causes establish Sainsbury’s as a corporation with a shared vision and ethic (Turner & Pennington 2015). Moreover, these factors also show that it is a learning organization (Alvesson & Sveningsson 2015; Baumgartner 2014). It outlines its commitment to learning, creates practical programs for workers, has a robust structure, upholds a collective vision, and makes strategic decisions about empowering its employees.
Sainsbury’s culture can also be analyzed using the theory of Hofstede’s dimensions. The use of task groups and teamwork in implementing innovations as wells as a general preference for shared thinking makes the company move towards collectivism, although the UK itself is an individualistic culture (Hofstede & McCrae 2004; Jaruzelski, Loehr & Holman 2011). Furthermore, the discussed above ideologies also show that the power distance is lower than that of a rigid hierarchy. In Western cultures, such a small degree of inequality is expected, thus being favored while establishing working relations.
Similarly, such countries as the UK expect managers and directors to be entrepreneurs who are unafraid to take risks (Hofstede & McCrae 2004). Here, however, Sainsbury’s seems to choose a different approach, introducing only small and thoroughly analyzed improvements to already existing products and market sectors. Its most significant innovation is the merger between Sainsbury’s and Asda, which expands the reach of the corporation and increases its share in the industry. Nonetheless, the lack of new product ranges or other radical changes keeps the level of uncertainty avoidance rather high.
Finally, Sainsbury’s presents a mix of feminine and masculine approaches to its business. On the one hand, its sustainability and empowerment initiatives show that it prioritizes the environment and the community (Naranjo-Valencia, Jiménez-Jiménez & Sanz-Valle 2016; Soares, Farhangmehr & Shoham 2007). Furthermore, it has a wellness program that establishes people’s healthy life scores and advises people to eat healthily and learn about the benefits of relationships, leisure time, and other aspects. On the other hand, its acquisition is a masculine choice – it is founded on the company’s drive to be the most influential retailer in the region. One can assume that all feminine-coded decisions are made to fulfill its masculine focus – to become the best and the most profitable business in the market sector. Thus, the company maintains a high masculinity score by its national ideology.
External Factors
The discussion of Hofstede’s dimensions also reveals some external factors that affect the company. The market values competitiveness, readiness for innovations, and low-risk avoidance. Using PESTLE, one can investigate the demands and trends of this industry further (Ho 2014). Firstly, political factors include the government’s changing attitude towards pricing in supermarkets and their choice of services. Moreover, public policies also affect the way Sainsbury’s and its competitors can operate.
As the discussed corporation works with food products, it is under strict regulations that are aimed to protect people’s health. This aspect also is represented in the legal sphere of operations, where Sainsbury’s has to act according to the national laws which determine such rules as minimum wage, food safety check-ups, storage size and temperature, and other standards. In regards to employees, state and international laws also regulate fair employment and sustainability of processes.
The economic sphere of operations in the UK market shows that the country’s retail industry is represented by large corporations, including such supermarket chains as Sainsbury’s. While some local vendors and small stores may open in some regions, the prevalence of nation-wide businesses is evident. Some international chains also have a place in the industry, including such direct competitors as Wal-Mart. Furthermore, the introduction of online-based stores that deliver food also influences the market and redistributes its shares. The technological aspect has a major impact on the creation of new standards, thus urging the physical stores to create new services to rival the increasing popularity of online marketing (Bughin et al. 2018). In a contrast, other technological developments allow businesses to improve their relations with the supply chain members, develop a better system for storage and delivery, and collect data about customers to enhance advertising strategies.
Finally, the socio-cultural factor reveals that the UK’s level of customer satisfaction with product changes, as the residents get access to more international online businesses. Thus, the competition in all spheres becomes harsher as a result. The increasing levels of diversity in communities also challenge large companies to broaden their focus and include products appealing to different customer groups. The UK’s average age is rising due to the high quality of life, thus creating the demand for more convenient services and accommodations.
Porter’s Five Forces analysis reveals the state of the industry. The bargaining power of suppliers can be high, as they can control some aspects of the business. However, in the case of large corporations, they have more authority over suppliers, dictating prices, monopolizing some services, and introducing their suppliers to shift the power balance (Dobbs 2014). The power of buyers, on the other hand, is higher than that of suppliers. Customers have a broad choice of options, especially with access to online-shopping and international brands getting more recognition. Moreover, their conscious decisions to support local producers have an impact on other brands and supermarkets as well. As grocery products are not unique or exclusive, people can quickly switch from one brand to another.
The threat of new entrants is low, as large corporations influence the existing market significantly. Nonetheless, the threat of substitutes is exceptionally high, as the range of products is vast and the prices do not differ substantially. Similarly, the rivalry is also intense, as supermarkets are mostly preferred for their location and accessibility, whereas brand loyalty is low.
Recommendation
The analyses of internal and external factors create a portrait of the retail industry in the UK. According to it, customers have significant power of choice, although large corporations dominate the country. The competition is demanding, asking for new ideas and continuous innovations. However, the products sold by such companies as Sainsbury’s are not prone to changes because they constitute the majority of people’s daily purchases.
Thus, the strategy of Sainsbury’s cannot be as experimental as those from technology industries. Therefore, the focus has to be shifted towards the paradigm, process, and position. Currently, the corporation’s interest in Asda acquisition is the most prominent innovative project. It can bring many positive results and allow the company to offer its services and goods in more regions, becoming more influential as an outcome. It should be noted that Sainsbury’s has to introduce its sustainable practices to the new locations to further their impact.
The company’s other goals for the future are less radical and are more connected to core changes. This can be justified by the fact that the majority of goods offered by Sainsbury’s are a part of the category called ‘Cash Cow’ – they possess a high market share but a low growth rate. The corporation’s expansion of adding financial services was a radical change at some point. Sainsbury’s chooses to focus on expanding this sector and strengthening its presence on the market. Furthermore, the rising popularity of online shopping should be addressed with increased attention. The company can improve its delivery services and combine this initiative with additional sustainable projects – less packaging and recyclable options for returning customers (Taticchi et al. 2015). This may attract a growing community of customers interested in eco-friendly consumption.
Conclusions
Sainsbury’s is a corporation that possesses a large share of the retail industry in the UK. Although it chooses a slower pace of innovations, its decisions to merge and expand its existing services can make the company more influential than before, gaining access to new locations and communities. It should remember that customers have significant power over the industry, as the selection of products and brands grows quickly, while the prices of such goods to not create any specific niches. Therefore, the possibility of radical or disruptive innovations is not as high as that of small incremental changes. The focus on sustainability is in line with the latest trends and society’s concerns for the environment. As a whole, Sainsbury’s innovations correspond with the current state of the industry.
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