Strategic business concepts and frameworks

Part I
Executive Summary
This paper focuses on the problem facing Tesla, Inc. and identifies how Porter’s Five Forces model can be applied to the company. It provides an examination of the company’s SWOT and discusses strategic alternatives and recommendations. It assesses that Tesla must focus on production and the recruitment and retention of talent to get production where it needs to be.
Background of the Business
Tesla, Inc. is a car manufacture in the automobile industry. It specializes in the production if high-end electric vehicles (EVs). Launched in 2003, Tesla’s first car was the Tesla Roadster, which was an ultra-luxury, ultra-sports EV for the specialized, niche car market. From there Tesla moved on to the Model S and Model X—two more luxury EVs that had more mainstream appeal. With the more affordable Model 3, Tesla managed to crack the mass market and become legitimate contender in the auto industry. However, a series of setbacks and delays has caused Tesla to lose its footing and allowed skeptics and critics to question the company’s ability to tackle the big players like BMW, VW, Ford, Audi, and the other majors—all of whom are working on their own lines of EVs.
Statement of Problem Facing the Firm
In order for Tesla to maintain market share and keep out of bankruptcy it has to sell more Model 3’s. However, the Model 3 has been plagued by production problems and the brand is not living up to its potential due to delays in the promised roll-out of an affordable Model 3 for $35,000.
According to Porter’s Five Forces, this problem needs to be addressed because the five forces Tesla is facing are:
1. Competition in the industry
2. Potential of new entrants into the industry
3. Power of suppliers
4. Power of customers
5. Threat of substitute products
Each one of these forces is a drag on Tesla’s ability to advance. Competition is heating up, putting pressure on Tesla to deliver the Model 3 and turn a profit. The potential for new entrants is rapidly increasing, especially in China and other markets. The power of suppliers is increasing, as Tesla has had problems making payments to suppliers and they are beginning to back away from Tesla, like Panasonic is now doing. The Power of customers is increasing, as customers begin shifting to the Chevy Bolt and other EVs, feeling that Tesla has not kept its promises to them. And thus the threat of substitute products is very real: Tesla’s Model 3 is not the only affordable EV they it may still be the most unique. Customers hungry for an EV that works, however, may settle for something less spectacular while Tesla continues to work out the problems in its production.
Summary of the Situation Analysis
SWOT
Strengths
The strengths of Tesla, Inc. are its brand, its focus on sustainability, its visionary leader and CEO Elon Musk, and the fact that it was basically first to market with an EV that had mass appeal to luxury car buyers with the Model S (Yauney, 2018). Aside from these strengths, Tesla’s sales for the most part come from the domestic market (Yuying & Qingrun, 2018). This means that Tesla is still popular in the U.S.
Weaknesses
One of Tesla’s main weaknesses is its inability to figure out production for its Model 3 and deliver it at the price it promised to consumers. Since the rollout last year, the Model 3 has been priced far higher than the promised base price of $35,000. This is because Tesla cannot sell the car at $35,000 and still make a profit. Plus, Tesla is experiencing a cash crunch as debts come due and Tesla is forced to pay bond holders in cash because the stock price is not high enough for notes to convert. Thus, Tesla needs to sell EVs at a profit, but it is struggling to do so. Tesla delivered nearly 30,000 EVs in Q1 of 2018. While that number rose to 51,000 in Q1 2019, it was well below analysts’ estimates of 80,000, which indicates demand is not where it needs to be. This may be the result of repeated bad press for both Musk and the Tesla brand, as numerous celebrities have taken to Twitter to announce their displeasure with their vehicles’ mishaps, including most recently Sheryl Crow. Tesla is also experiencing a high rate of turnover among managers and this has to be addressed.
Threats
Threats facing Tesla include rising competition, a possible economic recession, China demand plummeting, and government subsidies for the EV drying up. All of these could be bad for Tesla and potentially disastrous if the company cannot maintain its brand loyalty and move the Model 3 in a big way. The SEC is also currently investigating Musk for his use of Twitter and the criticism that he has been manipulating the market to help keep the company’s share price up. If the SEC forces Musk out of the company, everything Tesla has going for it in terms of having a following could be lost in a flash.
Opportunities
If Musk were to be replaced as CEO it might not possibly be the worst thing to happen. It could give Tesla an opportunity to focus less on innovation and more on the business side of things—such as how to make the Model 3 both affordable and profitable. Alghalith (2018) notes that Tesla also has the opportunity to scale and move beyond its domestic market: the company could create a following in Asia with the right marketing and it could build on its brand image going forward.
Strategic Alternatives and Recommendations
For Tesla, it has to get its Model 3 production under control. Because of turnover it is having trouble keeping talent. Recruiting and retaining a capable workforce is something that Gamble, Thompson and Peteraf (2015) recommend. They note that “staffing the right people at all levels is required to ensure competent performance of value chain activities” and they suggest that companies “find, develop, and then retain engaged employees with excellent compensation packages, opportunities for rapid advancement and professional growth, and challenging and interesting assignments” (p. 10-12). Tesla should thus hire the right talent so as to get the Model 3 production in order and prevent turnover. Tesla will need to fix its organizational culture in order to address the turnover issue. It will also need to boost its brand in the interim as it is in danger of losing its appeal. Likewise with competitors entering the market, Tesla needs to stay a step ahead of the competition by showing why it is the best EV in the market, which means the company is going to have to continue to innovate and attract customers based on its ability to push the EV space forward. It must continue to promote sustainability as well. According to Baumgartner (2014) sustainability can be a major factor in the corporate social responsibility (CSR) policies of a business, and for a company like Tesla, which has made sustainability part of its core values and the driver of its vision, such a CSR policy could really help the company to get the focus back on its brand and its mission.
Part II
A
Three concepts from the textbook I found most interesting were: 1) the need to hire and retain employees, 2) the need to link strategy, ethics and social responsibility, and 3) the need to craft an overall diversified corporate strategy. The first concept is interesting because it shows that there is more to a business than simply having a great idea. It shows the business also needs the right culture and the ability to attract the right people. The people are the ones who are going to bring the great idea to life and get it to market. So without the right people and the ability to retain them, the company is not going to succeed. This is the problem that Tesla is currently running into.
The second concept is interesting because it shows the need to make the company ethical and to adopt a CSR strategy. CSR should shape the way a company goes about its relationship with the community and the people it serves. Acting ethically helps to win over consumers and stakeholders; it attracts investors and makes the company look like it really does care about the environment and about people. The third concept is interesting because it shows that a company has to constantly be assessing new industries and deciding which it should enter; it has to pursue opportunities to leverage cross-business value chain relationships. And it has to initiate actions to enhance all its businesses’ performance.
B
If I was starting a business, my chose mission would be to take care of people first. My business would be a day spa salon for moms who have small children. The spa salon would have a separate nanny room for the children while mom gets treated for her spa. My mission would be to put people before profits. Too many companies put profits first and end going out of business because they neglect their people. I would anticipate my potential rivals to be other spa salons. Of the five generic competitive strategies, I would choose differentiation because it is the way I could set my company apart. I would be the only spa offering daycare services so that mom can get a spa while running her errands with the kids. This would give me excellent competitive advantage over my rivals.
C
Patagonia practices CSR by trying to eliminate its carbon footprint entirely. It is a company that wants to be 100% environmentally friendly. It wants consumers to know that it does nothing to harm the environment and that it wastes nothing. This is a great CSR strategy because it can win people over to the company who might otherwise pass it up. People want to invest in and support companies that share their values and ideals and many people have that value.
Another of Patagonia’s programs is to give back to the community and to support women in the world. This is a progressive policy that shows that the company is interested in making a difference in the world in terms of having a social doctrine. By supporting women, it is showing its progressivism and its willingness to promote equality and liberal values.
D
A high performing culture puts “extra effort into screening and evaluating job applicants—selecting for skill sets, energy, initiative, judgment, aptitudes for learning, and adaptability to the firm’s culture” (Gamble et al., 2015, p. 10-13). It invests in training, gives promising workers interesting challenges that can build on their skills, and it provides coaching to average workers. Unhealthy cultures are highly politicized, are hostile to change, are insular and too inwardly looking and they have no regard for ethical standards. Adaptive cultures are able to adapt to new challenges because they are fluid. They know what ethical principles they need to stand by and embrace and they hold onto these while looking to grow in new directions.
I would characterize the organization where I work as unhealthy because it is highly politicized and there is a tendency for everyone to feel like he has to be always politically correct. I would change the current culture by letting people feel freer to express themselves without fear of retaliation. I would not promote PC values but rather would emphasize ethics of transparency and accountability. I would recommend that the organization change its approach to ethics and drop the insistence on the politically correct issues.


References
Alghalith, N. (2018). Tesla: Innovation with Information technology. International
Journal of Business Research and Information Technology, 5(1), 37-51.
Baumgartner, R. J. (2014). Managing corporate sustainability and CSR: A conceptual
framework combining values, strategies and instruments contributing to sustainable development. Corporate Social Responsibility & Environmental Management, 21(5), 258–271.
Gamble, J., Peteraf, M. A., & Thompson, A. A. (2015). Essentials of strategic
management FOURTH EDITION.
Yauney, R. H. (2018). Leadership Development: A Study of Elon Musk. Marriott
Student Review, 2(2), 4.
Yuying, A. & Qingrun, R. (2018). Tesla’s international expansion strategy. Retrieved
from https://globalmarketingprofessor.com/teslas-international-expansion-strategy/