Introduction
Entrepreneur risk management is considered as an important process for every business whether large or small as without planning about the uncertainties then the firm can’t pursue their sustainability for longer duration of time. Basically, it is a plan-based business strategy that aim is to identify, assess and prepare for the hazards and potential disasters etc. That’s why; firm focuses hard on the preparation of risk management plan (Lam, 2014). In context to country like UK, it is must to adapt the risk management plan in order to prepare themselves for the future uncertainties. That’s why, UK popular retail firm i.e. Tesco has been taken for this project in order to improve their existing risk plan as firm currently faces large problem after Brexit and currently with pandemic. This study will undertake the risk management framework within which threshold, risk register and control instruments tend to be address in order to identify the risk occurrences and provide best solution to given risk.
Aims of organization
The aim of Tesco is to serve the best quality life to the people through ensure timely supplies of product as per their requirements without any error or mistakes. This aim can only be achieved with the estimation of risk as it has strong impact on the firm ability to gain its desired result. Basically, Tesco is a big brand name which consists of supermarket and deals in multiple product line such as electronic, clothing and stationary or many more etc. in that case, it faces various issues in day-to-day basis. But the major issues that they are facing because of pandemic are the limited market share in UK and various countries (Baxter et al., 2013). This is because it is found that supermarket operators shares falling down as with 3.3% in London due to increasing trend of online shopping related to basic necessity product to luxury one. It put pressure on firms to hold their existing market share. However, the workforces is also another problem for the Tesco due to country contain aged population of UK due to which it become difficult to find or retain the young-skilled workforces into the business. Other than that, the increasing competition and problems after Brexit are other areas which constant become challenge for the firm in terms to operate their business in UK market (Tesco, 2020). Thus, these areas could turns into risk in future that can be proven hazardous for the firm in future scenario. That’s why, it is important to rank the risk and priorities it accordingly so that firm can prepare themselves for the future uncertainties and able to gain sustainability even in this tough competitor environment.
Risk Thresholds
Risk threshold prove to be effective tool to manage the risk and support Tesco to overcome the problem and improve their existing risk management plan by making changes as per the current issues which firm is facing. However, threshold tool support to identify the possible risk and based on this, it guide the major occurrences risk that could affect more to the firm (Singh and Kahlon, 2014). Thus, this threshold supports the estimation of risk and its likely impact on firm. The risk for Tesco can be identified with prepare of risk register that could help to outline the risk and impact of such risk over the firm competitiveness.
| Risk Num. | Risk Description | Existing Controls | Likelihood (1-5) | Impact (1-5) | Risk Rating
(Likelihood * Impact) |
Mitigations Actions |
| 1 | Increasing boom of online services | It moves to online website for home delivery services especially for electronic products | 4 | 5 | 20 | It bring uniqueness in their online services through adapt AI or VI technologies |
| 2 | Skilled talent turnover | It improves its training session to hold the talent one. | 2 | 3 | 6 | Improve the reward and recognition policies for the store people |
| 3 | Increasing inflation rate in UK | It try to adapt the cost leadership pricing method to offer their services | 3 | 4 | 12 | It provide more discount or schemes especially on festive |
| 4 | Cut-throat competition in existing retail sector | It try to bring differentiation through undertake the services like self-help checkout system at their stores | 3 | 4 | 12 | The adaption of differentiation such as display at stores or customized services would assist to get more attention as compare to existing competitors |
Present of risk likelihood and its impact scales on Tesco
On the basis of risk rating under risk register template, the booming of online services hold more risk for the UK retailers in current or future scenario. So, it is must to focus on such aspects either moving as per the current trends or bring differentiation among the competitors.
The higher score risk likelihood to occur and impact the firm. Here likelihood means the high chances of happen with the sector or firm in near future and this risk definitely affect the firm ability to serve or hold their market share. This problem is already started as the study of Syme (2014) presented that 3.3% share fell of Tesco in UK market due to increased growth of e-commences business which is largely hold by the Morrison supermarkets Plc in UK. Besides that, USA e-commerce’s firms like Amazon.com Inc is another strong online competitor that grab maximum market share in UK. Thus, these areas give rise to the creation of problem for the Tesco market share in current scenario. The constant increased the online services definitely will hit the retailers in near future. That’s why, it is must for the retailers to come up with differentiate services to hold their position in this online competitive market.
Prepare Probability and impact Matrix to identify the risk score
The probability and matrix impact helps to guide regard to the occurrences of risk and its extensive impact. Basically, this scale acts as a presentation of risk as per their score which has identified from risk register (Douglas et al., 2013). So, the scoring would be done as per the risk register ranks. This matrix provides proper information about the risk and its impact on the firm.
| Impact | ||||||
| Trivial | Minor | Moderate | Major | Extreme | ||
| Probability | Rare | |||||
| Unlikely | Poor reputation of firm | Liquidity of firm | ||||
| Moderate | Employee satisfaction issues | Frequent change in Technology | Poor strategic management | |||
| Likely |
|
Loss of market share due to increasing retailers in local market |
|
|||
| Very Likely | Compliance with regulations which give rise to the inflation period in UK | High booming of online services
\ |
||||
From this score ranking, it is cleared that due to increasing online activities, it is most likely that Tesco will face risk related to lose its market share which already firm start losing in Pandemic duration. This is because people don’t prefer to visit stores due to virus transformation (Gürel and Tat, 2017). That’s why they are more engaging towards the online services like take away or home delivery services and e-commerce’s sites etc. In that case, Tesco definitely losses its market share in current scenario and it will also affect in future scenario too. So this is quite negative impact over the firm.
On the other hand, the risk such as reputation issue and employee dissatisfaction does not consider as a major issue for firm as with the improvement in the firm policies, Tesco able to retain its loyal or talent once at the stores. That’s why; it is assumed that these risks wouldn’t bring major uncertainties for the firm in near future (Economics, 2020). So, this matrix outline the risk for Tesco in green, yellow and red color within it is signified that green risk consist of unlikely chances to occur while yellow color indication risk has a moderate probability to occur and if it is then has less probability to hit the firm. But lastly, red color risk needs to give special attention to address it so that firm can hold back their position in UK market.
Identified threats and/or opportunities
In order to analyze the threat or opportunities for Tesco, it is important to undertake SWOT analysis to reveal its resources and capabilities as it helps to gain information about the ability of firm in respect to take up opportunities through control the threats (Yuan, 2013).
Use of External analysis tool
SWOT Analysis
| Strength
· It is biggest grocery store in UK · It has multiple product line · It has efficient supply chain network |
Weakness
· It gain decrease in operating profits · It has low-cost strategy · It is low marketing strategies |
| Opportunities
· The strategic alliances with other brand will give proper exposure to retailer like Tesco in terms to carry out the business operation at online areas also. · Use of current or emerging trends in retail sector will help the Tesco to grab lot of positive opportunities. |
Threats
· The increased competition among the existing players like Mark & Spenser, Wesfarmer or Woolworth gives rise to the high competition to Tesco. · The constant change in online technologies also gives high threat to Tesco new online services. |
PEST Analysis
- Political:- There is political instability in UK after brexit as after leave EU, the pound become weaker due to restriction on trading with Europe. Profit margins of retailers are also affected after Brexit.
- Economical:- UK consist of stable economy but with the current pandemic and post Brexit, the problem of inflation occur in country due to which people cost of living and labor cost get increased (Sammut‐Bonnici and Galea, 2015).
- Social:- UK consist of cultural diversity people within which their taste and preferences changes by region to region. Likewise, the taste also depends upon the age group of people. It is found that UK majority of population is within 40-65 (Panina et al., 2016). So, the taste is quite varying people to people.
- Technological:- UK is high in adaption of technology as maximum exposure is gained by the e-commerce’s firm in UK only. Due to this, online platform become major trend for the retailers in UK market (Brown et al., 2016).
Discussion on the company threats and opportunities for risk assessment
The above internal and external analysis clearly signified that UK current economic or political condition is not stable enough for the retailers especially due to increasing pressure of inflation and then online platform. In that case, it is important for retailers to focus on the usage of right technology within which retailer can provide customized services to them. It can be done though install Artificial or Virtual intelligences services at store where customer can look at the image of product and then able to select the feasible one (Aven, 2016). This process is already used in South Korea people at their retail cosmetic store.
Other than that, it is found that social factors can also give threat to Tesco as it is found UK citizens majorly uses of social-site to create their awareness about the product and especially at the time of pandemic. This can be justified with the following figures.
(Sources: Enikolopov et al., 2020)
This figure clearly showed that usage of social network users is increasing from 2015 and still it is expected to grow till 2025 with 50.89 million users. This fact signify that in future the people tend to be more dependent upon the social-site or online services more as compare to offline process. The major cause behind occurrences of such situation due to increasing employment within which people can’t get time to visit on supermarket and this makes them prefer to buy from the e-commerce’s firms. Thus, this would definitely affect the large market share of offline big supermarket like Tesco or M&S one.
The problem is not new for Tesco anymore due to currently only firm face the problem of decline in market share due to booming of online industry (Moore and Patton, 2019). This is especially occurring due to present pandemic within which people does not find safe to visit stores. It gives rise to the problem of retailers on terms to losing the customers.
However, Tesco large focus on offline stores also affect its online delivery services due to which people faith is moving more on the local brand service or international competitors like Amazon etc. thus, these instances clearly demonstrated the present situation of Tesco and the risk that likely to affect its operations at near future.
Existing controls
In respect to these issues, Tesco has implemented various existing control such as bring changes in the firm policy as now it moved to online platform for the grocery or electronic services. Still it has face issue regards to the low market share among the competitors. However, the firm has also undertake the cost leadership strategy to bring differentiation in UK market by provide the product at low cost. but with the increasing competitors, the cost leadership strategy become common as now every retailer come up with low cost strategy within which it become difficult to hold the market share (Hopkin, 2018). At the same time, the inflation in UK also affect the people purchasing power due to which existing retailers feel pressure to come up with differentiated services that can appeal to customers. otherwise, low cost product become a common process in UK within which firm now prefer to buy from online platform as they are more capable enough to cut-down the cost of product as compare to offline store which include store expenses and warehouse cost also.
However, Louche and Idowu (2017) identified that Tesco is losing its market share due to which inflation in UK and booming of innovation or new trends in online services. In such respective, Tesco somewhere address the risk of market share through move to online areas. Likewise, Tesco provide plastic bag free home delivery services to local citizens within which people find it quite impressive to get the products without having plastic packaging. This kind of practice appeals larger customer base.
Other than that, Kopia et al. (2017) also found that Tesco has made large investment on multiple areas as it consist of 80% store in across the Europe which clearly signify the chances of high risk. However, the below table provide justification about Tesco store chain and its space usage from 2004-09. Based on this, it becomes easy to estimate the number of stores of Tesco.
(Source: Tesco PLC, 2020)
It is estimated that there is increasing number of store since past and the square meter of each store consist of 2.91 or more than that. It means that Tesco grab huge opportunities on short duration and successfully expand the business stores on different nations like UK and non-UK countries like USA, Japan, Thailand, South Korea, India and many more places.
According to Gurd and Helliar (2017), it is true that large expansion means high risk occurrences in future. This means that firm needs to be alert for the uncertainties. In that case, Tesco ability to retain the success is largely depending upon the business actions. Likewise, firm manages risk through their risk management model which assists them to control the operation of firm on proper manner.
(Sources: MindTools, 2020)
This risk management model is used by the Tesco manager to deal with future risk. This model helps the supermarket about the current trends on retail sector and support the firm with implementation. But this model is somewhere is failing due to improper monitoring services or unavailability skilled workforces which able to execute the model on proper manner so that problem of risk occurrence can be address. Likewise, the external factor like inflation in UK economy and ageing population of local citizens are such factors that automatically affected the firm market share (Ali et al., 2017). Besides that, current COVID-19 pandemic which is totally unexpected also affects the Tesco supermarket sales on adverse manner as people have fear to visit the stores due to spreading of virus through human contact. In that case, the increasing demand of online services declines the growth of retailers.
That’s why, it become important for retailers to come up with proper strategies that can support with the handling of future uncertainties like booming of online services and changing government policies etc (Rahman et al., 2016). Thus, the right development of strategies in risk management plan would support the Tesco to deal with issues and enhance the sustainability.
However, Tesco is the one which involves in the adaption of current services or government regulation in their businesses. Likewise, when store manager found problem of long Ques in Tesco stores then it implement the self check-out system to help out the customer with easy payment system. So, this area indicates about the internal ability of firm but macro factors can’t be in hands of firm. That’s why; it is must for Tesco to prepare right risk management strategies so that external forces can be controlled.
Calculation of Risk and Risk Threshold
After evaluation Tesco existing controls in respect to risk or uncertainties, it is found that firm is already into the handling of risk related to employee turnover rate or increase trend of online service demand. But with the innovation in online services will put pressure on firm to stay with the trends as it bring various risk related to losing of customer interest or sales of business (Bhat et al., 2020). This calculation will help to estimate the most likely or impactful risk for the firm.
For calculation of risk rating, scoring is done 1-5. 5 indicate high likelihood to affect risk while 1 indicates less impact on the risk.
| Estimated risk | Likelihood
(1-5) |
Impact
(1-5) |
Risk rating/threshold
(Likelihood*Impact) |
| Less use of technology like AR/VR in both online or offline service can give rise to the poor customer service | 5 | 5 | 25 |
| Reducing demand for the supermarket stores | 4 | 3 | 12 |
| Increasing ageing population in UK | 2 | 3 | 6 |
| Less growth in the economic development | 4 | 5 | 20 |
On the basis of this table, it is estimated that Tesco need to focus more on the technologies in respect to improve their customer services. This is because current retail business demands for the adaptation of more innovation or right business model to gain sustainability in this cut-throat competition.
Mitigation Actions
On the basis of present current threats or opportunities for Tesco, it is must to prepare plan for dealing with it. This can be done through implement AI driven system. Likewise, firm can install AI touch screen mirror at store so that customer can easily access the product and its price without touching it (Bertrand et al., 2015). This area would help the Tesco to get the visiting of customers at store. This kind of strategies would help the firm to revive the concept of retail in the modern business environment. in respect to online service, Tesco can also install the VI services and this can be done through include image of product and its price on proper manner and the use of VI method also helps the customer to identify the product or service quality.
Other than that, the current trend of using environmental friendly packaging tend to be another effective practice to get the customers retain for longer duration. It is true that after current pandemic, people become more aware about the environmental damages within which human lives are affecting. So, in that case the use of concept like recycle, reuse or reduce method would solve the problem of retailers in terms to make available of resources on time. This is because during pandemic, export or import facilities become problematic for countries within which the supplies get reduce (Salines et al., 2017). However, the improvement in the e-payment system is also become important as now people in across the globe become cash-less. That’s why; it is must for every retailer whether in offline or online to get involve of right e-payment options. this is because if customer get the availability of reliable payment option then it never hesitate to visit in the store even at the time of pandemic as cash-less transaction support no human contact and easy to carry money at any place.
However, another important mitigation strategy would be to focus on data-driven retailer activities within which retailer must place an order as per the customer current taste and demand. This is because such areas would support to reduce the problem of waste and save the much resources (Štulec, 2017). Thus, this practice also reduces the cost of production for the firm. it results to maintain firm profit stability in this current pandemic
Conclusion
From the above analysis, it is concluded that risk management plan is the important part for the enterprise as plan include risk register or threshold which suggest the most likelihood or impactful risk for the firm. Likewise, Tesco with risk register scale get to know that increase boom of online service would definitely affect the sales and ability to sustain in future. In that case, Tesco implements various actions like move to online delivery service along with indulge into the use of right technologies in the offline or online areas to improve the customer service. Basically, the risk threshold supports the firm to take out right mitigation strategy like install of AI/VI technology into the business so that sustainability can be enhanced even in this tough competitive market. Thus, this way risk management plan support the firm to stay with the current trends of industries within which they able to stay in competition for longer duration of time.
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