STRATEGIC MANAGEMENT ANALYSIS
STRATEGIC MANAGEMENT ANALYSISDhruv Parekh, Sheryl (Qianru) Wang, Manas Thakre,Shiyi Luo, Jacob Kovacs, Vaibhavi Rangarajan
ContentsIntroductionWho is Tesla Motors?SnapshotHistoryLeadershipOrganizational StructureCultureInnovationCorporate Social ResponsibilitySocial RoleIT StrategyStrategic Management AnalysisPESTEL AnalysisPorter Five Forces AnalysisSWOT AnalysisRecommendationsReferences
IntroductionGreetings!We are pleased to share our strategic managementanalysis of Tesla Motors, an inspiring company with abold vision: to “accelerate the world’s transition tosustainable energy” (Tesla, n.d.).DhruvParekhIn this report, we provide an in-depth picture of Tesla’soperations, followed by a comprehensive analysis of thelandscape Tesla faces at present. We conclude withseveral strategic recommendations for Tesla.Tesla’s Corporate SocialResponsibility is what Iadmire.I am now a big fan ofTesla.ShiyiLuoJacobKovacsVaibhaviRangarajanCool company, cool CEO,cool cars!Who knew a carcompany could be sointeresting?Tesla shows it’s possibleto dream big andachieve those goals.We enjoyed working together to understand this complexand exciting company. We all brought strong ideas to thetable and negotiated to form a common vision. Welearned to apply management principles to a real-worldcase, and also built more appreciation for the tremendousgood a business can do under principled leadership.— Team SixSheryl(Qianru)WangManasThakreWe got to know a trueleader.
Who is Tesla Motors?An in-depth portrait of the company
SnapshotModel STesla Motors, Inc. is an American automakerunder the leadership of Elon Musk. The companymarked its entry into the automotive market withthe Roadster sportscar, a completely batterypowered vehicle. The company developed its ownpower storage technology in the form oflithium-ion batteries for the Roadster, and itbecame the first-ever car that can go up to 200miles on the strength of a single charge. Teslalaunched the Model S luxury sedan in 2012, whichearned a five star safety rating and went on tobecome world’s best selling plugin vehicle by 2015(Baer, 2014). As of November 2016, 150,000 unitsof the Tesla Model S have been sold worldwide,and the mass-market Model 3 is expected in 2018(Hanley, 2015). Tesla also has a chain ofSupercharger stations across the United States,parts of Europe, and Australia, where the cars canbe charged by their owners at no cost; chargers inthe network have the ability to give a 60% batteryboost in just 20 minutes (Tesla, n.d.).In April 2015, Tesla also announced its residentialand commercial power solutions—Powerwallsand Powerpacks (Riley, 2015).As of today, Tesla manufactures the majority ofits cars in Fremont, California, with anotherassembly location in the Netherlands to serve theEuropean market. In 2014, Tesla announced itsmassive plans to build its own Gigafactory inNevada for the production of car batteries andother power solutions. The Gigafactory is underconstruction with a 5 billion investment jointlymade by Tesla and Panasonic. Once fullyoperational, the facility will be able to produce 36GWh of clean electricity to charge the batteriesthat will eventually be used in cars, Powerpacksand Powerwalls (Tesla, n.d.).Model XModel 3 (expected 2018)“We're running the most dangerous experiment in history right now,which is to see how much carbon dioxide the atmosphere can handlebefore there is an environmental catastrophe.”— Elon Musk
SnapshotTesla Motors has shown a ten times revenueincrease from 2012 to 2015, mostly owing to thecommercial success of its Model S. However, dueto increasing investments in manufacturing andretail stores, the company has yet to showpositive results in terms of net profits, and hasraked in losses the past 4 years with net lossesamounting to 88 million in 2015 (Tesla, n.d.).Despite these short-term financial losses,shareholders have shown increasing interest inTesla, with share price and company valuationincreasing tremendously since the company wentpublic in 2010 (Squatriglia, 2010; Tesla, n.d.). As oftoday, Tesla has a market capitalization of about 31 billion, more than half of Ford Motors (Tesla,n.d.). Tesla Motors also got a significant push fromUS authorities in recognition of its effort to makelarge-scale production of non-polluting electricvehicles a reality; this was majorly in forms of taxcredits to the company, with an estimated 2.4billion of future incentives awaiting Tesla for itsGigafactory project (Tesla, n.d.).
HistoryTesla was founded in 2003 by two engineers,Martin Eberhard and Marc Tarpenning (Baer,2014). Fresh from a divorce, Eberhard wentlooking for a sportscar but found none that wereclimate friendly. He also noticed that batterytechnology had advanced enough that ahigh-performance electric sports car waspossible—and, since the giants of the 100-year oldautomotive industry had outsourced the bulk oftheir production in pursuit of the ideal of dynamiccore competencies (Hitt, Haynes, and Serpa,2010), Tesla could just tap into existing supplychains instead of engineering every component ofa car. Eberhard persuaded Tarpenning that therewas a market for a powerful, stunningly-designedclean energy vehicle, thus launching Tesla with afocused differentiation strategy (Jones andGeorge, 2012).Tesla had several rounds of startup funding beforeits IPO. Elon Musk was their first major investor,and eventually took over as CEO in 2007—rightbefore Tesla shipped its first commercial product,Baer, 2014; Riley, 2015; Stewart, 2016; Squatriglia, 2010the Roadster. Under Musk’s leadership, Tesla hasgone beyond cars to design a whole ecosystem ofalternative energy products that gain much oftheir appeal from the way they fit together(Stewart, 2016). For example, Tesla sells solarroofing that charges a home battery that chargesan electric car, virtually eliminating home-basedcarbon emissions. Tesla is also trying to expandinto the midmarket next year with the Model 3.“I was thinking I should do whatevery guy does and buy a sports car ”— Martin Eberhard
Leadership Traits: Elon MuskTesla CEO Elon Musk has a clear vision ofaccelerating the world towards sustainablesources of energy. This vision is clearly reflected inall the work he does, whether at Tesla Motors orthe other companies he leads—like SolarCity(recently merged with Tesla; Stewart, 2016) andSpaceX. To evolve and contribute towards themainstream usage of sustainable energy, Muskhas been the central force developingcutting-edge technologies by employing the bestminds in the field. He has heavily invested humancapital and money into developing these in-housetechnologies, whether it is high-efficiency cars orestablishment of the Tesla Gigafactory. Muskleads by example: he has created severalcompanies that showcase success in such a shorttime that he is definitely among the top leaders inthe world. Musk’s creativity and transformationalleadership has played a pivotal role in the successand progress of Tesla, which is now seen as theworld’s most prominent brand in the automotiveindustry.Elon musk’s leadership traits are a mixof opinionated and adaptable leaders,putting him in the quadrant of the mostsuccessful and continuously innovatingleaders like Steve Jobs. While he hashas a strong persona reflecting hisopinions, he is adaptable in nature andready to accept the many failures in theprocess of innovation—which is themost significant trait oftransformational leadership.stalwartimpartialadaptableopinionated
Leadership2008Martin Eberhard, founderMarc Tarpenning, founderDaryll Siry, chief of marketingMusk’s communication style has been described asauthentic, down-to-earth, and exceptionally clear,with four times more use of the present tense thanaverage (Goldberger, n.d.; Crabtree, 2016;Schwartz, 2016). These traits help him rally peoplebehind a very bold vision and motivate them topursue it. His aggressive focus, though, can makehim conflict- prone, blind to his employees’ hardwork, and defensive against complaints instead oflearning from them (Vance, 2015; Newcomb, 2016).One apparent consequence of Musk’s style isperpetual senior leadership turnover (Morrisson,2008; Volecker, 2009; Shall, 2016; Lambert, 2016;Korosec, 2016, “Model 3 event”; Korosec, 2016,“Tesla loses”; see sidebar). Such turnover is costly(Lucas, 2013) for reasons including training costs,lost knowledge, and potential negative morale.As another consequence, employee reviews arefrank about the long hours and poor work-lifebalance—though they overwhelmingly state thatthe company’s mission makes the personal sacrificeworthwhile (Glassdoor.com, n.d.; Indeed.com, n.d.;Jones, 2016). Meanwhile, after reports of lowcontractor pay, UAW is attempting to unionizeproduction workers (Bloomberg View, 2016).Tensions have also come to the surface inTesla’s supply chain. As a newcomer to theintricacies of automotive manufacturing, Tesladepends on suppliers to build its cars. In fact,Tesla and would never have come intoexistence at as a company without Eberhard,Tarpenning, and Musk’s diplomatic in-personefforts to persuade potential suppliers (Baer,2014). Recently, some suppliers have struggledto meet Musk’s purposefully optimisticproduction targets, and the company Mobileyeended its relationship with Tesla by publiclyciting its concerns that Tesla’s deadlines poseda safety risk (Rosevear, 2016).2009Michael van der Sanda, chief of marketingMichael Donoughe, chief vehicle engineer201020112012Ricardo Reyes, VP global communications20132014Simon Sproule, head of comms. department left20152016Michael Zanoni, VP financeJames Chen, VP regulatory affairsJosh Ensign, VP manufacturingGreg Reichow, VP productionTESLA’S SENIORLEADERSHIP EXODUS“Even by the turbulent standards of Silicon Valley's venture-fundedstartups, Telsa [has] garnered more than its share of attention formissteps, multiple CEOs, layoffs, and lawsuits ”(Voelcker, 2009)
Organizational StructureTesla has a functional form of organizationalstructure that enables it to exercise strongcontrol of the business (Meyer, 2016,“Structure”). The various functionaldepartments are Human Resources, BusinessDevelopment, Engineering, Processes andAutopilot, Manufacturing, Design Through,Global Sales and Services (see sidebar).Through this structure, Tesla is able tomaximize its ability to implement newstrategies and manage its operationalactivities.Tesla also maintains minimal regionaldivisions, specifically four: the USA, Norway,China, and a catch-all division for operations inother locations. These divisions allow Tesla totailor their strategies, marketing campaigns,and financial reporting to differentgeographies with different customerpopulations and legal requirements.Despite maintaining regional divisions,Tesla’s emphasis of global centralizationmeans that their entire organization iscontrolled through decisions that a centralgroup or team generates. Tesla’s centralheadquarters includes the head of eachoffice of its global hierarchy; the companydoes not support autonomy of its regional oroverseas offices. Instead, Tesla’sheadquarter makes the majority ofoperational decisions for overseasoperations.“Starting and growing a business is as muchabout the innovation, drive, anddetermination of the people behind it asthe product they sell.”— Elon Musk
Organizational CultureTESLA’S CULTUREPROS & CONSTesla’s organization structure is one of the keyfactors that influences its culture. The six corefeatures of Tesla’s culture (Meyer, 2016; seebelow) contribute to making Tesla a learningorganization that is able to surmount a turbulentbusiness environment (Jones and George, 2016).Think like ownersWe are ALL INDo the impossibleReason from ‘first principles’Constantly innovateMove fastCore features of Tesla’s organizational culture(Meyer, 2016).As a learning organization, Tesla believes inpersonal mastery (“Think like owners”); employeesare encouraged to think out of the box and bringinnovative ideas (“Constantly innovate”). Thecompany tries to reward innovative employeecontributions.Because of strong executive leadership, Teslaemployees share a common vision (“Do theimpossible”) that unifies them and reduces conflicts.The global scope of this vision is an example of boldsystems thinking, and, in addition, Tesla managersencourage their employees to use complex mentalmodels (“Reason from ‘first principles’”) to find theroot cause of issues and respond to problems veryquickly and effectively (“Move fast”). Tesla hastraining programs to orient its human resources tothis feature of its organizational culture.Finally, from its roots in Silicon Valley’s softwaredevelopment culture and practices (High, 2014),Tesla places a high value on team learning andeffective teamwork (“We are ALL IN”). Open and direct communicationHighly innovative productsEmployees unafraid to take risksRapid, responsive problem solvingSuitable rewards for employees- Pressure of innovation- Employee burn-out- Poor work-life balance
InnovationINNOVATIONAT TESLA MOTORSIntegrative innovation is part of the fabric ofTesla’s culture; in 2016, Forbes Magazine (n.d.)rated it the World’s Most Innovative Company.The following aspects of Tesla’s culture, structureand daily work are what makes it different(Nielson, 2016):Tesla treats its competitors—traditional autocompanies—as potential allies, and formedstrategic alliances early for its battery recyclingprogram. Tesla also “models the way” with openpatents, as Elon Musk believes that suchknowledge should be shared widely for thecommon good.Tesla has idealistic goals of a greener planet. Thecompany approaches this vision by integratingdecades of sustainable energy research in manyfields into a viable form.Tesla makes unique products—like connectedcars that have self-driving abilities, can beupgraded over the air or monitored via phone,and charge for free on the nationwide TeslaSupercharger network.Tesla is known for placing risky bets ontechnology and itself. After all, it is a startup in theover 100 years old automotive industry.Employees are encouraged to set stretch goals inkeeping with the informal Musk Doctrine: “Neverset a deadline you are likely to keep”.Missionand VisionProductsand ServicesTesla’s business strategies are a unique casestudy in themselves. No other auto companytakes capital from customers upfront beforebuilding the car. Tesla also focuses on engineeringand design over marketing. Finally, their decisionto retail directly customers has upended thetraditional dealership- based automotive supplychain.With such innovation, for the first time inautomotive history a vehicle has been createdwhose price can appreciate over time.Appetitefor RiskView ofcompetitorsBusinessPractices“Failure IS an option here. If things arenot failing, you are not innovating enough.”— Elon Musk
Corporate Social ResponsibilityTesla Motors can be characterized as a companythat takes a proactive approach (Jones andGeorge, 2016) its social responsibilities. Tesla is atthe forefront of several pressing social causes.Thus far its short life as a company can be dividedinto two stages: environmental protection, andenergy conservation.From 2003 to 2015, Tesla included theresponsibility of environmental protection in itsorganizational strategies. In addition to lesseningthe dependence of transportation on petroleumand manufacturing its own electric vehicles withzero emissions, Tesla also instituted a closed loopfor battery recycling to make its productionprocess more environmentally friendly (Kelty,2011). This recycling loop takes used lead-acidbatteries, separates them into coin-sizedcomponent parts, then sorts, re-processes andfinally reuses the purified lead in batterymanufacturing. The recycling program hasvaluable outcomes in terms of environmentalprotection.It has enabled Tesla to completely reuse itsrecycled battery packs, only 10% of which couldbe used before instituting the program; it hasreduced the amount of batteries that go tolandfill; and, by using a new recycling technologyprovided by Umicore, it has reduced at least 70%of the normal CO2 emissions from the refiningprocess.In 2015, as Tesla realized the importance ofenergy conservation to protecting theenvironment, it stepped into a second stage anddirected its strategies toward new energydevelopment. Tesla chose not to limit its vision inapplying new energy in auto market; rather, itplans to create a suite of integrated products thatprovide clean energy to residential, commercial,and industrial markets.Tesla’s closed loop batteryrecycling process (Kelty, 2011).“If something is important enough, even if theodds are against you, you should still do it.”— Elon Musk
Corporate Social ResponsibilityTesla’s energy conservation stage started by bringingsolar power into people’s daily life with thePowerwall, a rechargeable lithium-ion batteryproduct that stores and provides electricity to homesand small businesses (Riley, 2015). With thePowerwall, people could sustainably use solar power:they store the surplus electricity produced by thesolar panel system during a sunny day, and use it atnight or in a rainy day when there is not enoughelectricity generated. After that, Tesla unveiledanother energy product—the Solar Roof—that worksdirectly with the Powerwall to collect solar powerand convert it to electricity. Moreover, in order todeepen its expertise in the energy field, Teslapurchased SolarCity in November (Stewart, 2016)and consequently strengthened its capability tointegrate electric vehicles, Powerwall, and SolarRoofing in an end-to-end energy plan. It hasproposed very specific details in the plan, includingembedding the solar panel system in walls by takingadvantage of Tesla’s manufacturing strength. WhenTesla’s idea is realized, humans will move a majorstep forward towards independence from fossil fuel.An important lesson we learn from Tesla ishow it perfectly combines organizationaldevelopment and implementation of socialresponsibilities. When focusing on electricvehicles manufacturing, Tesla combines theresponsibility for decreasing environmentalpollution with its strategy of expanding marketshare in the automotive industry. It aims atdeveloping cars with more outstandingperformances than gasoline cars, in order toencourage customers to purchase great carsthat happen to be electric. In this way, itsmarket share increases and emissions fromgasoline cars are reduced simultaneously.And, after entering the energy industry, Teslahas developed an integrative product chainthat could greatly increase its profit marginswhile, at the same time, providing society witha conveniently packaged way to utilize solarpower.SolarCity(2016)PowerWall(2015)Solar Roof(2016)
Social RoleTesla is an excellent example of the potential for acompany to have a major impact on society bytackling ambitious problems.As a pioneer in the automotive industry, Tesla isvery strictly focused on innovation to the extentthat it ignores short-term losses and often missesproduct launch deadlines. It has even worked toimprove seemingly less needed technologies—forinstance, autonomous falcon wing doors—toappeal to customer desires for convenience andbreathtakingly well-designed products. CEO ElonMusk is often criticized for decreasing the profitmargin by spending an overwhelming amount ofcosts on R&D (AmigoBulls, n.d.). According to thenewest statistic, Tesla’s expenses on R&D hassurpassed 200 million dollars in the third quarterof 2016, which represents 10% of its quarterlyrevenue and one third of its gross profit(AmigoBulls, n.d.). Nevertheless, with its heavyinvestment, Tesla has acquired unparalleledstrengths in both quantity and quality oftechnological innovation in charging and energystorage. According to FreshPatents (n.d.), Teslahas applied for over 200 patents between 2010and 2016, almost all of which depends on theefforts of its R&D teams. Tesla’s innovation isrecognized by the public, as well as being namedthe number one I
We are pleased to share our strategic management analysis of Tesla Motors, an inspiring company with a bold vision: to “accelerate the world’s transition to sustainable energy” (Tesla, n.d.). In this report, we provide an in-depth picture of Tesla’s operations, followed by a compre
1. 4 Tools for strategic analysis 1. 4a SWOT 1. 4b TOWS 1. 4c Hambrick Model: Strategy Diamond 1. 4d BCG matrix 1. 4e General Electrics Stoplight Matrix 1. 4f Balance score card . 3 Management Strategic Management Strategic Analysis 1. 5 Summary 1.2 Introduction Strategic Management is the process of strategic decision-making that sets the long .
PART ONE Introduction to Strategic Management and Business Policy 1 CHAPTER1 Basic Concepts of Strategic Management 2 1.1 The Study of Strategic Management 5 Phases of Strategic Management 5 Benefits of Strategic Management 6 1.2 Globalization and Environmental Sustainability: Challenges to Strategic Management 7 Impact of Globalization 8
The Strategic Management Process 15 Developing a Strategic Vision: Stage 1 of the Strategic Management Process: 17 How a Strategic Vision Differs from a Mission Statement 19 The Importance of Communicating the Strategic Vision 22 The Benefits of an Effective Strategic Vision 22 Setting Objectives: Stage 2 of the Strategic Management Process 22 xxiv
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The field of strategic management within the evolving science of strategic organization. Strategic Organization. Porter, Michael E. (1991). "Towards a dynamic theory of strategy," Strategic Management Journal, Winter Special Issue, pp. 95-118. Session 2: Wednesday January 28 The Dependent Variable in Strategic Management: Measuring Performance
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