Tesla Strategic Analysis - Essay Example

Westminster Business School Business Management BKEY601 Strategic Perspectives Tesla Strategic Analysis Report Lisa Huynh W1380385 Caroline Bolam & Ahmed Saeed Executive Summary The automotive industry is large and accommodates so many people. So many people are employed in the industry. Tesla Motors is one of the best in the industry despite being founded about a decade ago. It is competing with companies that have managed to outsell indigenous companies from all over the world, and Tesla has made its mark in the same industry. The Porter’s five forces show a very huge need for development and concern as the company seeks new ventures outside North America. This means it must work on differentiating its products and using new strategies such as cost leadership and CSR activities to harness the major potential in the market. It must also look for strategies that are sustainable, acceptable and feasible when seeking to maintain a competitive edge in the industry. Other companies are also making good use of the stable social attributes that meet the core demands of the society through the development of new strategies while reinforcing the present one. Franchising would be a good idea for its new European market as well as using stability strategies in the new markets. Diversification will provide Tesla with the needed understanding of the market and an opportunity to come up with new means of creating a stable cash flow. Table of Contents Westminster Business School 1 Course: Business Management 1 Executive Summary 2 Table of Contents 3 External environment 4 Macro environment analysis 4 PESTLE 5 Political 5 Economic 6 Social 7 Technological 7 Legal 8 Environment 8 Porter’s five forces 8 Analysis of the internal environment 10 Resource Based View of the Company 10 Analysis of PR crises 12 Strategic Analysis 13 Conclusion 17 Tesla Motors The automotive industry has been growing at an exponential rate given the increased globalisation. Financial developments have also made it easier for people to afford cars from different dealers. This has allowed them to make better choices in meeting their main demands, as well as allow the growth of the society based on their purchasing power. Ideally, the industry has also been a big boost to the growth of the economy. This means it has had different encounters with a variety of forces such as the political, social, economic, legal, technological and the main attributes that assist the companies to develop better from a global perspective. Of greater importance in this report is the Tesla motor company. This will be reviewed based on its external and internal environments, strategic positioning and PR. Any company that wishes to grow its profitability and market share must be willing to conduct an audit of its services in a variety of departments to effect changes where need be. External environment Macro environment analysis It is important to note that the automotive industry is one of the fastest growing industries in the world. Globalisation has played a key role in making companies expand their reach across the globe. The aspect of outsourcing has also played a huge role in meeting the main demands of these companies, giving them a chance to capitalise on cheap labor and cheaper and readily available raw materials (Buelens, Sinding, Waldstrom, Kreitner, & Kinicki 2011: 123). The main problem, as noted, are those factors that are beyond the company’s reach, and which play a huge role in determining the progress of these same companies in the competitive automotive industry. With more than 70 million vehicles produced annually, there is a need to keep up with the demands and ensure greater understanding of the markets as they are. This also implies having a great understanding of what the major markets are and how to tap into them as a way of gaining leverage over rival companies. A look into the PESTLE and five forces describe by Porter will see what is making this one of the most competitive industries in the world. PESTLE When looking at any environment that carries with it a host of companies and firms, the PESTLE analysis formula allows for a better and interactive session. This creates a better understanding of the global markets and meets their main demands. The idea is to create a platform that expounds on many things that control the systematic factors within the environment, which will make the whole process influential in determining the way forward. PESTLE stands for political, economic, social, technological, legal and environmental factors (Carpenter, & Sanders 2007: 99). Political The automobile industry has undergone several changes over the past few years. This has led to a host of policy changes to try to streamline the industry. This industry has undergone a variety of change that is important in shaping the industry into something that will meet the expected growth of the same society. Ideally, the important part is to meet the main demands of the society because legislation will control the industry, but the expected departments will have to implement these directives. On the areas that saw a change in the industry was in the environmental legislation which came about to help protect the environment (Carpenter, & Sanders 2007: 112). This meant that at least the carbon emissions would be slashed by at least 90% within six years while car manufacturers had to come up with measures of dealing with the same. Ideally, the industry must look for ways of engaging in clean energy while working on changing the current models to suit the expected trends. The legislations may also limit the miles per gallon to ensure level playfield for all cars. This may affect the way manufacturers operate and that may hinder the growing need for better service provision. Any company within the automobile industry must adhere to such rules some that may cost more than expected (Mintzberg, Ahlstrand & Lampel 2008: 46). Economic Whenever an economic crisis occurs, the repercussions are diverse. A good example was the 2008 financial crisis that saw the GM motors bailed out by the government. This shows that the economic growth and progress of any country will affect the way these other companies operate because of the impact that this has on the society in general (Carpenter, & Sanders 2007: 114). Another major issue is the issue of taxation. The government has to impose taxes to gain revenue. The industry is one of the largest in the industry and the tax imposed must be paid within the required timelines. This could affect the availability of products to consumers and the price changes could be negative to the company (Haberberg & Rieple 2008: 111). In case the crisis occurs again, the purchasing power will reduce and that will make it difficult to sell their products (Armstrong & Greene 2007: 119). The aim of massive productions is to meet the main financial demands of the society while also meeting the economic demands of the company. If this does not happen, it will be difficult to achieve the main demands of the society (Mintzberg, Ahlstrand & Lampel 2008: 52). Any boom in the economy will also be an added advantage to the industry, something that will increase growth while at the same time increasing the purchasing power amongst the users. Social The availability of cars has made it one of the main requirements in many cultures. Lifestyle changes have made the automobile industry quite rich because a car became a symbol of prestige (Nordberg 2011:68). Another thing influencing it is the growing culture of such cars and the impact these have on the society as a whole. The idea is to create products that will fit into the culture as well as improve on the quality that clients will admire. The improvements could be in costs or quality, as well as in other benefits for the clients (Mulcaster 2009: 70). Technological The latest developments in the world today have made it very easy to increase competition amongst the top companies in the automotive industry. The main aim is to be ahead of competition, and companies have resulted to pumping more money into the research and development section as a means of meeting the main demands of the growing technological advancements (David 2007: 54). Laser technologies have also made competition in the industry stiffer; while computer aided designs and manufacturing have taken over as the new methods of testing how fit a car is for consumers. Any vehicle that does not meet the main demands of the target population loses out and is a loss to the company (Sussland 2004:49). The new hydrogen driven cars are also causing ripples as companies try to outdo each other in the clean energy sector. Legal To keep the industry fair and on the right legal track, the government has put in place legislations to help monitor the activities of this growing industry (Cameron 2011:25). The legislations have to deal with the safety issues of the drivers within the country, and the way these companies seek to create new measures that will meet the demands of the current standards. The aim is to present the consumers with better services as the society works on entrenching the legal ideals into their everyday activities (David 2007: 59). Environment The various markets that automobile companies sell their cars will also determine the build of the cars. The idea is to have a better understanding of which markets to look into and the best ways of dealing with the climate and weather that affects some of the areas these cars operate (Thompson, Strickland & Gamble 2008: 318). The only way of doing this is by enhancing the manufacturing processes and coming up with developments to meet these new demands. Porter’s five forces The threat of new entrants is high (Witcher & Chau 2010: 240). More companies are willing to get into the automobile industry because of the opportunities envisioned. This allows them to make the best out of the many outsourcing options present in the globe today. Globalization has made this a very competitive sector. The bargaining power of the suppliers is quite low in the automobile industry (Buelens et al. 2011: 129). With globalization, more opportunities to outsource products have been opened in the world. This has led to an increased number of suppliers. Therefore, the suppliers understand that they have to deal with the way the companies want to buy the products because the increase has led to more individuals seeking to outsource cheaper raw materials from elsewhere. The buyers’ powers are high in this market. They have a variety to choose from and the car companies have to come up with differentiation strategies that will enhance their level of involvement in the new world of manufacturing. The main goal is to ensure that the buyers do not go elsewhere and deny the company any revenue. This will only be possible if the company maximizes on its attributes rather than wait for outside assistance to keep it moving (De Wit & Meyer 2010: 192). The threat of a substitute means of transport is high. The government is working on making the rail system functional and the costs of maintaining a vehicle could allow more people to substitute the car for a bicycle or a train as a means of transport. The nature of competition mirrors that of an oligopoly market since there are few big players and many small players (David 2007: 66). This makes it easy to keep track of rivals. The product life cycle is in the growth stage, hence the need to keep working on differentiating the product from its rival companies. Competitive rivalry is also high. Companies are stealing their designs from the other manufacturers and coming up with new ways of making their products better. That edge is one that has led to the highly competitive nature of the market. To minimize this, product differentiation again takes a higher position at this level. Analysis of the internal environment Resource Based View of the Company Tesla understands that the growing competition requires it to harness its services and meet the main demands of the industry it is in. The tangible and intangible capabilities it possesses currently will be important in meeting its main goals as well as increasing the main attributes of the social interaction taking place within the organisation. One of the benefits that Tesla has over its rivals is the ability to raise its models to meet its annual objectives, outselling bigger companies such as Nissan and GM in the sale of electric cars. They understand that R&D is one of the most essential aspects that define the growth of any manufacturing industry (David 2007: 55). The electric cars are yet to gain as much prominence, but the fact that it gained a net income of more than $10 million is a big deal. It has the manufacturing plants that will provide the consumers with something to do as well as meet the goal of remaining relevant in the industry. The ability to come up with a car design that exudes the level of technological advancement made in the industry is an example of how good the company is in general. It provides a good understanding of the appropriate system to input in a conventional car and gain the efficiency that would make a consumer satisfied (Carpenter & Sanders 2007: 119). This improved Tesla’s capabilities and landed it to the top of the tier, making it big in the growth of its production. Tesla is one of the companies that have managed to have a mass-produced car in comparison to the rest of the major manufacturers within the US since the Second World War. It has managed to meet the main demands of the industry after taking over the main production systems with an agility that saw them even outsell companies such as BMW and Audi in various markets. It has received different accolades that will boost its ability to reach out to the market and sell its products over new areas. It boasts of new methods of doing business that are essential in a market as established as the automotive industry (Henry 2011: 126). One of the main core competencies of the company is the ability to reach out to as many people as possible (De Wit & Meyer 2010: 194). This allows the company to contract dealers across the world and get mutually exclusive relationships between the two parties. This allows it to get direct access to the clients and maximise on creation of value chain. The sales will be a reflection of the cost structure incurred within the specified timeframe, while making the best decisions on the future of the company (De Wit & Meyer 2010: 196). Many dealerships for most of the companies in are the potential makers or breakers because they offer the company a chance to advertise and market at a subsidised fee. The knowledge the engineers garnered as they worked in Silicon Valley was one of the main competencies that continued to hold the company after its formation. The ingenuity of the materials used made the production cheaper and faster, something that made it possible to outdo companies such as Nissan and Mercedes in creating rear-wheel-drive vehicles. As of 2014, Tesla has a revenue of $3.198 billion, but the operating income had dipped during the same year to $-186.9 million. The total assets went up to $5.849 billion and the total equity was at $911.7 million (Stead 2014:67). Such statistics show that the company needs to work on raising its operating income and cut on costs that makes the operation quite expensive. Nonetheless, the company shows its resilience despite the competition and it growth projections, something that provides the motivation to employees and stakeholders to meet its major needs adequately. With increased revenue, it is possible to move to new markets and set up a strategic position that will improve its utility of the available resources and maintain its competitiveness in the industry. Its Roadster and Model S have been doing quite well in America, and that is a plus for them. The new Model X will also be well positioned to meet the main demands of the clients, with the new means of creating new platforms to bolster its presence in the market. This makes it easier to meet its demands and remain relevant in the industry. By meeting these demands, Tesla is placing itself on an avenue that allows for proper utility of its position in the market. Its production methods have been quite intriguing, allowing cars to use batteries that weigh less than the conventional ones, and allowing more people to make good use of the available platforms. The aim is to meet the clients’ demands, formulate new ways of dealing with new environments and retain competitiveness by producing cars that meet the expected standards in the industry (Orcullo 2008: 113). This will imply continuing with its differentiation mechanisms that push it to the very top of the tier (Wells 2010: 71). The differentiation of products allows the company to compete on a higher level, something that will make the company reach its targets faster and easily over the next few years. The company ahs to continue working on its place in the market, and that will imply getting more chances at dealing with the issues at hand. Analysis of PR crises In any company, internal tussles are bound to happen. The problem is when no one works towards reconciliation of the differences within the company. A good example is the issue of Elon Musk wanting something very different to what the company was creating. The result was an issue that could derail the company from meeting its goals. The manufacture of a car that meets the main demands of the society today and one that allows them to maximize on the growing attributes is of paramount importance, hence the need to look for a way of dealing with the misunderstanding. The reputation of the company is at stake because the direction taken will determine its position in the market and its sales too. The use of the reputation management concepts will be an ideal way of dealing with issues within the workplace. The main idea is to create a platform that sells the company based on the skills present as well as the greater understanding that the company is at a position that requires careful consideration of any activity taking place. In most case scenarios, the role of the management is to come up with decisions that will shift the company to greater heights. In this case, more research and analysis needs to be done as a way of entrusting all decisions to the best possible alternative. This can be boosted by the use of CSR concepts that will enable the company to interact with the society and learn more about what they want in their society. This allows them to entrust their work based on the ability to mitigate any PR crisis that could harm the company s a whole. The management needs to concede that the metrics presented by Tesla in a new environment will require them to delve deeper into the mission the company professes and work on entrenching this all the way. Ideally, Tesla can only rise above its competitive rivals by realizing that its strengths lie within the company. Strategic Analysis Business level By using its differentiation attribute, Tesla will be very easy to handle the issues arising form the market, making it easier to engage the entire market in meeting its initial goals (Hitt, Ireland & Hoskisson 2009: 210). The problem with this is the lack of understanding that could push its product further, if the PR crisis persists. The company can also seek to use CSR as an alternative to reaching more goals in the coming years, as well as penetrating more markets within Europe. CSR is a good way of dealing with the initial distrust in the market. The lack of a strong strategy will not meet the main demands of the company at all strategic levels. This will receive a huge boost by the low forces of the suppliers, though the lack of a strong team to handle the threat of entry may limit its expansion (Witcher & Chau 2010: 98). Corporate level As Christodoulou and Patel (2014:5) posit, the traditional approaches to strategic management will not work well in the current business industry. After identifying what the company can do at the business level through product differentiation, it is important to understand that the best thing to use now is the corporate level strategy. One that would work best at this level is the one that works best through the growth of the products by using the best strategic management steps possible (Christodoulou and Patel 2014:6). This will work best if the company seeks to develop the market and increase its penetration to other important markets like Europe. The company will conduct a feasibility study that will enhance the growing need for a stable production system that meets the main demands of the society, while still working towards getting the right platform for dealing with the social activities that define the role of the company in the area (Hitt, Ireland & Hoskisson 2009: 210). Another strategy will involve meeting the core demands that encourage diversification within the organization. At all times, the employees must be tasked with new products and designs that could leverage the company in the highly competitive society (Hill & Jones 2009: 102). Ideally, motor industry is slowly shifting to the electric cars, and working on ways of converting their gas cars to electric cars means that they could understand the best way of having an upper edge in comparison with their competitors. This also shows the main reason why companies need to act on what they have before they can push their products to the next level of development (Kim & Stimpert 2004: 22). Another corporate level strategy would be the use of franchising. In most of the European nations, certain automobile industries have set shop in such areas such as BMW, Volkswagen and Mercedes Benz, which have a huge following in their respective markets. The use of franchising will open up the company to receive new clients by using the infrastructure present to meet its core demands. The goal is to ensure that the company experiences a stable learning strategy that will grow the company towards meeting the key attributes of the society (Johnson, Whittington & Scholes 2010: 123). With the present level of involvement in the market, Tesla should not seek to divest in any of the markets where it has a large following (Luthans 2011:230).the main goal is to harness as much potential as possible in meeting the main goals of the society, while meeting the key demands of the society. In every activity conducted, the main aim of the company is to reach its maximum goal while investing in other areas that will give it the required potential. In meeting this goal,. One of the main ways of meeting its goals is by diversification. The idea is to have more methods of dealing with the available mechanisms before understanding the market and specializing on a specific product. This will also give it an opportunity to make investments in areas that matter the most to the company and its clients. The idea is to get as many products in the market and gauge the reaction of their clients. That will boost their ability to grow their product line even more. Strategies The creation of new sources of capabilities will have to provide the society with new platforms that increase the learning process while meeting the main demands of the society at all production levels. Tesla needs to provide new methods of dealing with any crises while making sure that the success of the company will be the pride of all its stakeholders. One way of doing this is by increasing the number of options manufacturing plants to provide new R&D options for the company as whole. The aim is to create and regenerate new method of meeting its many ideologies, hence avert any crisis. It can also come up with an oversight body to handle any queries and support the wellbeing of the business. This will limit any cases of damaging the company’s reputation and make good use of the issues present. They will provide guidance to the company when competing interests arise and ensure everything done aims at meeting the aims of the company (Lynch 2006: 88 ;McGee, Thomas & Wilson 2005:45) Competitive advantage is another way of dealing with the available platforms. The company can make good use of the resources available to meet the main demands of the industry (Hill & Jones 2009: 110). By looking at product differentiation, it is possible to provide more chances of meeting the main goals of the company. This sustainable strategy meets the main rationale for dealing with the issues within the market. The main idea is to create a new platform that will enhance its position within the society as well as underline the organization’s main strategies. The decisions will trickle from the top to the bottom and then be dealt with while involving all levels of decision-making attributes (McShane & Von Glinow 2012: 33). That will enhance the company’s chances of having a leverage over their rivals. It is also feasible in many fronts. The company will have to deal with its cash flow analysis and forecast based on the current markets. The main goal should be based on the resource deployment analysis that will meet the main attributes of the society, creating new needs and handling others that may have been neglected before. The only way of achieving this is by understanding that the resources available must have a higher ROI at the end of it all. This will only happen if the abstract definitions of the dynamic capabilities that both the suppliers and distributors have when making certain choices (McGee, Thomas & Wilson 2005: 163). The only way of measuring this ROI is by understanding that the acceptability nature of the strategy is higher amongst stakeholders in the company. By making good utility of the forecasts, it will be easy to dictate the main attributes of the company that handle the risks involved in doing business. The reactions anticipated from all the stakeholders will provide a basis for the determination of the company’s future. Conclusion Tesla is one of the best companies with a bright future ahead. It has realised different goals within its few years in existence. It has managed to meet the main ideals of the automotive industry, even surpassing some of the older and more experienced companies. This has led to the increase in the ability to meet client needs. To continue with this trend, it is always important to apply different methodologies that will raise the requisite levels of adapting to the general trends of the society. Ideally, many people will have to meet with the managerial routines that will enhance the company’s position across its new bases. 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