Accounting And Finance For Managers: Defects Of Theory (Essay Sample)

ACCOUNTING AND FINANCE FOR MANAGERS
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Table of Content TOC \o "1-3" \h \z \u 1. Introduction PAGEREF _Toc394427414 \h 31.1 Relevance of Disruptive Innovation Theory in Tesco Plc PAGEREF _Toc394427415 \h 41.2 Comparison of Tesco plc and Disruptive Innovation Theory PAGEREF _Toc394427416 \h 81.3 Comparison of Measuring Goodness of Profitability PAGEREF _Toc394427417 \h 91.4 Major Defects of the Theory PAGEREF _Toc394427418 \h 111.5 Reasons for Higher Profit Margin in Rebar Market PAGEREF _Toc394427419 \h 112. Plan on How Professors Teaching, Help Us to Move to a Sustainable as well as Successful Future as Human Beings PAGEREF _Toc394427420 \h 13REFERENCES PAGEREF _Toc394427421 \h 15
1. Introduction
The disruptive innovation theory explains the phenomenon by which innovations of an organisation transform the existing sector or market by introducing convenience, affordability, accessibility and simplicity where high cost and complications are the status quo. Currently, the disruptive innovation theory is mainly formed in the niche market which might appear inconsequential or unattractive to the sector incumbents, but in due course the new idea or product completely redefines the sector (Burns 2006). As many organisations tend to be innovative faster than their consumers’ needs evolve, most of these firms in the long run end up producing services or products which are too sophisticated, too complicated and too expensive for many consumers in their market. Thus organisations need to pursue the sustaining innovation strategies at higher tiers of the markets since by charging the highest prices to most sophisticated and demanding consumers at top of their market will help them succeed as they will achieve the greatest profitability (Christensen 1997).
Moreover, through sustaining innovations, organisations give way to disruptive innovations at bottom of market. Disruptive innovation allows all new consumers at the bottom of the market to access products or services which were only accessible to customers with a huge amount of money or a high level of skills (Christensen 2013). Efficiency innovation helps in reduction of the cost of distributing and making existing services and products; it reduces the net number of jobs in the sector, allowing the same amount of work to be done utilising fewer employees. Moreover, efficiency innovation emancipates the capital for the other uses.
Tesco plc, a British multinational grocery and third largest general merchandise retailer worldwide operating around 2,318 stores around the world is an example of a company which has benefited from the disruptive innovation theory. Tesco has revolutionised the manner in which its customers used to shop and it has built a national store network covering the whole of the UK, while diversifying to other products. Tesco plc is one of UK based organisations carrying out its operations beneath four key banners; Extra, Metro, Superstores and Express (Tesco plc 2013).Moreover, Tesco plc conducts its operations in numerous areas across the world with some of its stores located in the Middle East, Asia and Europe. Further, Tesco plc provides its customers around the world with some online services via Tesco.com. It offers a wide range of offline and online personal services; hence giving its customers room to shop using smart phones, tablet computers, and traditional sales vessels such as telephones or catalogues (Tesco plc 2013). The Tesco plc brand contributes over a half of the organisation sales.
1.1 Relevance of the Disruptive Innovation Theory in Tesco Plc
Disruptive innovation allows the organisation to predict whether its competitors will fight it or flee it. For instance, competitors fight each other through price variation when they make same products targeting the same customers. Nonetheless, with disruptive innovation in an organisation, the established competition leaves the market wide open to new customers (Christensen 2013). The disruptor competes against non-consumption but not against the other suppliers. This innovation transforms those products and services which seemed to be costly, and only very rich individuals could access them and make them affordable and cheaper that the ordinary customers can afford them.
One of the key advantages of disruptive innovations theory is that disruptive innovations are not the breakthrough which makes products better; however they are referred to as innovations which make the services and products of an organisation more affordable and accessible, hence making them available to a larger number of consumers.
The disruptive innovation theory enhances continued improvement and advancement to stable markets. It will give organisations a competitive edge over its competitors since it can be targeted at the niche market. Tesco plc competitors have already created and developed the niche market hence have allowed disruptive innovations to be leveraged off the organisation. Thus, this competitive edge will make Tesco plc more attractive as the acquisition. Moreover, according to Burns (2006) an organisation which introduces disruptive innovations gains advantage over its competitors. In addition, Tesco plc originally specialised in production of food and drinks, it has integrated the knowledge of disruptive innovation theory in its operations and diversified into electronics, clothing, telecoms, financial services, retailing as well as renting DVDs, CDs, internet services, music downloads and software (Tesco plc 2013).This level of innovation enables the organisation customers to get access to services and products offered by Tesco plc easy and at lower prices. In addition, this innovation has enabled Tesco plc to gain competitive advantage over its competitors such as Sainsbury’s plc.
Disruptive innovation is also very important to consumers since it ensures that products are readily accessible at affordable prices. Christensen (2013) argues that disruptive innovations often enable organisations to generate cheaper services and products which have greater performance and higher functionality. Thus, disruptive innovation theory has benefited Tesco plc in ensuring continuous improvement within the market. This has enabled the company to produce cheaper food products that have higher satisfaction, ultimately generating greater and better values for its customers. In addition, disruptive innovation theory is very beneficial for organisations since it enables the organisations to bring to market very different value propositions compared to the ones which had been available in the past. The products based on the disruptive innovations theory are relatively cheaper, more convenient and simpler to use. This is very useful to the consumers utilising these products. Through disruptive innovative theory, Tesco plc has been able to modify its products making them more attractive to its customers as well as affordable and cheaper (Tesco plc 2013). This in return makes the company’s gross and net profit to increase hence increasing its gross and net profit margin.
In addition, Tesco plc joint venture with Royal Bank of Scotland is also an example of how disruptive innovation theory is successful in making products and services affordable to customers. The joint venture is very beneficial for Tesco plc customers since they can access financial services and products easily and at lower interest rates. Tesco plc’s reduction of its products and services price across the UK in all areas such as ready meals, meat, wine, snacks, fruits and vegetables, health and beauty, toys and home wares, is another good example of how disruptive innovation theory works (Tesco plc 2013). It ensures continued improvement of the products to make them more affordable by many customers across the country, hence increasing the level of sales of the company which in return increases the profitability.
Disruptive innovation theory enables organisations to overshoot their customers’ ability to absorb performance improvement through the attempt to bring better products in the market than the competitors (Christensen 2013). Therefore, Tesco plc has been able to utilise disruptive innovation theory properly by improving its products faster than customers’ expectations and needs, hence increasing the company’s level of sales which in return increases the return on assets ratio.
On the other hand, the disruptive innovation seems to have numerous disadvantages if applied in the organisation. First, it poses a nightmare for the established organisations since it may meet the future needs of the organisations but may not add any value to current needs of the customers (Burns 2006). In addition, the disruptive innovation theory makes allocation of resources problematic. Tesco plc spins new products off in separate ventures, matching potential market to innovation. Secondly, disruptive innovation requires separate strategy process. The process has to be focused and emergent on the unanticipated issues, successes as well as opportunities rather than focused and intended on the improved understanding of the strategies that work.
The low-end disruption innovations are believed to occur when the rate at which the products improve exceeds the rate at which the customers can adopt or can utilise the new performance. Thus, at some point, products’ performance goes beyond the needs of particular customer segments (Burns 2006). To curb this, disruptive innovations enter the market and provide products with lower performance than the incumbent but exceed requirements of particular segments, hence gaining grip in the market. In the low-end disruption, the disruptor mainly focuses on serving the least profitable consumers, who are happy with the good enough products. The customers at this market are unwilling to p...