TESLA- STRATEGIC MANAGEMENT

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TESLA MOTORS,
about the strategic management and the components, detailed statement of the vision and mission, strategies of the organization, strategic roles of the CEO, effectiveness of strategic management of Tesl motors

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TESLA- STRATEGIC MANAGEMENT

  1. 1. OPEN UNIVERSITY MALAYSIA FACULTY OF BUSINESS MANAGEMENT STRATEGIC MANAGEMENT (BBPS 4103) Course: Bachelor in Business Administration Name: Fathmath Juhaina Rasheed Student ID Number: S11423051 ID Number: A345468 Email address:juheyna.rashyd@gmail.com Lecturer’s Name: Ibrahim Firushan Learning centre:
  2. 2. BY: FATHMATH JUHAINA|S11423051|BBA B13
  3. 3. Contents EXECUTIVE SUMMARY INTRODUCTION.........................................................................................................................4 STRATEGIC MANAGEMENT..............................................................................................................5 COMPANY......................................................................................................................................5 COMPONENTS & ELEMENTS................................................................................................7 STRATEGY FORMULATION...............................................................................................................7 STRATREGY IMPLEMENTATION........................................................................................................8 STRATREGY EVALATION AND CONTROL............................................................................................8 STRATEGIC ROLES OF CEO....................................................................................................9 EFFECTIVENESS OFSTRATEGIC MANAGEMENT.........................................................10 CONCLUSION.............................................................................................................................14
  4. 4. EXECUTIVE SUMMARY Tesla Motors Inc is the only company to succeed in manufacturing Electronic vehicles. This assignment will demonstrate more on the introduction of the company, what is strategic management, the components and elements of strategic management. Also strategic roles of the CEO, Elon Musk will be discussed. Moreover it will detail in the effectiveness of strategic management of Tesla Motors Inc.
  5. 5. INTRODUCTION STRATEGIC MANAGEMENT Starting a business is easy, but to nurture and make it a success it takes a lot of uphill struggle. As advancement in technology is reforming the world at a drastic speed it will be more difficult to uphold the position in the market. To maintain the position one might learn the art of formulating, evaluating and implementing the best decisions and objective to keep an organization running. Therefore, strategically running a business in manner that it can last longer in the market is the main target of any of the business organization. According to Gluck and Jaunch (1984) strategic management is defined as, “strategic management refers to a set of decisions and actions that leads to the formulation of an effective strategy to achieve the objectives of the organization.” One of the fastest growing industries is the Automobile industry. Electric cars and Hybrid cars have been in the market for some times now. However the companies have struggled to sell these cars. In a twist, the current growing trend in the automotive industry is the demand for electric vehicles by the Tesla motors. Tesla motors sold twice more than as many cars as Nissan when they introduced their battery powered vehicles. Competition soared up between well-known brands such as, Toyota, Nissan, Volkswagen, Hyundai, etc. Tesla is the 2nd company according to the MIT Technology Review website, among a list of 50 world’s smartest companies around the globe. COMPANY The award winning company was found in 2003 headquartered in Palo Alto, California. This remarkable discovery was done by a group of Silicon Valley
  6. 6. Engineers who desired to prove that these electronic vehicles could become the next big hit. Indeed, the production was a remarkable after it hit the streets in early 2008. It is an American company which deals in manufacturing, designing and wholesaling electric cars and vehicle power train components. Some of the power components Tesla Motors promotes include lithium-ion battery packs to automakers such as Toyota and Daimler. According to the official website of Tesla motors, the award winning model was launched in 2012, Model S. The model received numerous awards such as Car of the year awards and a 5-star safety rating from the U.S. national Highway Traffic Safety Administration. This was the company’s second invention, a fully electric Luxury Sedan. However the first model, Tesla Roadster, the first fully electric sports car was the reason to gain widespread interest around the globe. The business was growing ever since launching the first car, Tesla Roadster. The employment doubled by January 2014. The strategy is the main component to run a business smoothly in the long run, according to Johnson and schools: “Strategy is the direction and scope of an organization over the long-term: which achieves advantage for the organization through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfill stakeholder expectations". The company operates in retail locations around all around the world, in small focused teams. Tesla Motors focuses on excellence and are work driven by contributing to a global impact and are passionate about becoming the best in the automotive industry in the future. Therefore the managing, implementing and formulating of strategic management is tremendously important for the company. Looking at some of the benefits caused by implementing strategic management, one of the benefits can be improvement in financial performance of the organization in which it enables to make clear strategic decisions effectively along with improving the corporate governance and ethics, etc.
  7. 7. COMPONENTS & ELEMENTS Three major components of strategic management, they are 1. Strategy formulation 2. Strategy implementation 3. Strategy evaluation and control In each of these components there are several other elements which make it a component. STRATEGY FORMULATION: the main elements in the formation are the vision, mission, goals and objectives of the organization. Moreover external analysis, internal analysis, industry analysis and competitive analysis are the other elements. In this component the organization also must classify the strategic alternatives and selection of the strategic choices. As any other strong organization, it is vital for Tesla Motors to have a strategic plan for success. As mentioned above the basic components of strategic management, the plan starts with the strategic formulation. To start with the strategic formulation the company must state it vision and mission in order to set the goals. Tesla Motors States it as; Vision: “create the most compelling car company of the 21st century by driving the World’s Transition to electric vehicles” Mission: “move from a mine and burn hydrocarbon economy towards a sustainable, solar electronic economy”. Furthermore, to complete strategy formulation component, doing a thorough internal, external, competitive and industrial analysis is very important. This analysis should be done as often as possible if there are any changes in the environment, competitor’s new innovations or any other change in the internal and external factors.
  8. 8. Therefore, Tesla Motors must keep up-to-date with the varying trends and technology to compete in the market. STRATREGY IMPLEMENTATION: The key elements that will affect the strategy implementation are the organizational structure, leadership and people and other organizational systems and procedures. This means Tesla Motor needs to define the organizational goals at the operational level which should be defined into objectives. According to Elon Musk, Co-Founder & CEO of Tesla Motors, the master plan is to: a) Build sports car b) Use that money to build an affordable car c) Use that money to build an even more affordable car d) While doing above, also provide zero emission electric power generation options The CEO of the company, Elon musk states in the company overview “Our goal when we created Tesla a decade ago was the same as it is today: to drive the world’s transition to electric mobility by bringing a full range of increasingly affordable electric cars to market.” STRATREGY EVALATION AND CONTROL: This is the last component of strategic management. In this component, the managers have to ensure that the implemented strategy is assessed consequently and it is reviewed periodically. The evaluation can be done either by comparing with competitors or it can also be done by comparing the previous year of business by this year. The company is aiming to build an SUV; model X to keep the trend going and also it was scheduled to release the car in the 4th quarter of the year 2014. However, the company changed the release date to be in the 2nd quarter of 2015. Several evaluations were made by the company in the decision making process as the evaluation strategy is to make the best decision for the company’s current implemented strategies. One reason, mentioned in Los Angeles Times newspaper , R.D,.white (2013) said “Tesla Motors inc, said in its annual report Thursday that is has received federal approval to complete the repayment of its $465 million is U.S. Energy Department loans five years ahead of
  9. 9. schedule.” The company’s plan is to finish the loan by 2017 which was scheduled to be done by 2022. STRATEGIC ROLES OF CEO “The CEO helps a transformation succeed by communicating its significance, modeling the desired changes, building a strong top team, and getting personally involved.” (AikenandKeller, 2007.) The Chief Executive Officer or the CEO is responsible for setting the strategy and the vision of the company. Though board of directors or the senior management helps to develop the strategy and also the investors can be the people to approve a business plan, ultimately CEO is the person who sets the path. The Chief executive Officer of Tesla Motor Inc is Elon Musk, a man with immense plans. He is also the famous founder of the companies such as Zip2, PayPal and SpaceX. The motive behind his interest in Electronic cars was because he was aware of the peak oil. Therefore in order to cater car to an economy where the resource is going to decrease was the idea behind electronic cars. Some of the strategies he uses in his business are:  No Stationed Tesla Dealers: the company is to do their own sale through their own showrooms and by ordering on website. This way the company believes it would be less costly as even now the prices of the vehicles are high. He believes in quality, the staffs are not given a sales target, the price offered in the showroom is the last price as of no discounts- take or leave as a result everyone is treated fair and square. Moreover, the cars are marketed better as the company will be dealing directly with the customers.  Sharing Technology: Recently a new plan was unveiled by Elon Musk: the plan not to initiate patent lawsuit against anyone that uses the company’s technology. On June 12th when
  10. 10. Tesla informed the new plan, CEO Elon Musk said “Technology leadership is not defined by patents, which history has repeatedly shown to be small protection indeed against a determined competitor, but rather by the ability of a company to attract and motivate the world’s most talented engineers.” The plan intends to create more electronic vehicles from others who use Tesla Company’s technology, this will also create competition. However Elon Musk believes that the company will be one step ahead by the time any electronic vehicle will be out in the market from any other party. This is also to encourage bigger competitors to use their technology and create electronic vehicles and use their massive sales and marketing power to make people aware. This will lead for others to create power stations all around which will reduce the cost of making their own power stations by Tesla Company. The main reason behind the plan is that Elon Musk needs the electronic industry to succeed for him to be in business for a longer time.  Master plan in action: Elon Musk also puts action on to achieving the Master plan which he already planned after setting the Vision of the company. Model by model the company’s target is to create a cheaper model than the previous model. This will be discussed on how the company’s effectiveness of the strategic management.  Moreover, Elon Musk brought two of the major companies in as long-term investors to supply electric Powertrain systems. EFFECTIVENESS OF STRATEGIC MANAGEMENT As mentioned earlier there are 3 components of strategic management. The strategic management will show how effective it is when these three components are assessed thoroughly. Therefore to imply the best practice in strategic formulation a thorough internal, external, industrial and a competitive analysis should be done. STRENGTH  The first to develop entirely electronic sports car  A strong competitor to major other brands. I.e.; Toyota  proficiency in technological area of electronic transmissions and trains  Manufacture only electronic cars: the problem with the fuel cells
  11. 11. is that they are always 10 years into the future. When it comes to hybrid and diesel, if oil is used faster than it can be replenished, it will eventually run out or become more expensive.  The model S, won the 2013 most trendiest car of the year, a competition that began in 1949  Model S also became a 5-star safety rating from the U.S. National Highway Traffic Safety Administration. WEAKNESS  Production cost is higher than their competitors  The infrastructure around electric cars does not exist: stations to charge the cars like gas stations  Limited operating history considered to the competitors  Limited revenues which leads to lack of profitability OPPORTUNITIES  Supply of oil is limited, therefore higher oil prices leads to more demand for electronic cars  People are more concerned with the environmental issues;  Alternate use of battery technology such as absorbing powers from solar panels THREATS  More competition over environment friendly cars by the larger competitors than Tesla  Expensive than the combustion engine cars This analysis show the current analysis of the company, this analysis will keep varying according to any change in the environment, political, competition and technology. The company can put its best interest in to areas where the company is likely to face any threat before the threat actually happens. Therefore, looking at the analysis done for Tesla Motors the biggest threat is the competitive market and their high prices. For this the company is already working towards the goal, making their main motive to create an affordable version of electronic vehicle. As mentioned earlier in the strategic implementation component, the company has already defined the organizational goals from the operational level.
  12. 12. “The strategy of Tesla is to enter at the high end of the market, where customers are prepared to pay a premium,” Musk wrote in a post titled in 2006.The master plan is the objective that the company said. Having mentioned the master plan earlier Tesla motors have already achieved the first objective, their first model Roadster was a luxury sports car sold at a base price for more than $90,000 in the United States earlier when they started. This model created a boost in the demand for electronic vehicle among several government incentives across the world and as well as the public. Thus, the profit obtained from selling the car lead to introduction of a new model, model S, which was very much cheaper compared to Tesla Roadster. According to Tesla Motor website, the base price for the model is believed to be roughly US$64,000. This model also led to an increase in the company reputation by achieving different world wide awards. TESLA ROADSTER The company is set to launch its third model the Model X. According to Tesla Motors it was earlier schedule to release by the 4th quarter of 2014; however the automakers are now estimating the model would not be released before 2015. Moreover, the company assures that the Model X price will be lower than model S as the company CEO Elon Musk having said earlier that the prices are to be cheaper by model by model when he set the goal. Not only this but also, there is another model to be released by not later than 2017 and this is supposedly cheaper than the previous two models.
  13. 13. With this information, it can be concluded that Tesla Motors had set a strategy in place to implement to go along; the company’s future is looking bright if the implementations are made at the correct timing. Furthermore the evaluating and controlling is a process which the company needs to follow after implementing the strategy. Hence, as mentioned early in the strategy implementation, the company is aiming to build an SUV; model X to keep the trend going and also it was scheduled to release the car in the 4th quarter of this year 2014. However, the company changed the release date to be in the 2nd quarter of 2015. Several evaluations were made by the company to take the decision One reason was as mentioned in Los Angeles Times newspaper , R.D., White (2013) said “Tesla Motors inc, said in its annual report Thursday that is has received federal approval to complete the repayment of its $465 million is U.S. Energy Department loans five years ahead of schedule.” The company’s plan is to finish the loan by 2017 which was scheduled to be done by 2022. Another reason was in order for the company to cater to the production target of the Previous Model, Model S and as well as the company was more focused on the overseas rollouts. The company is taking the initial step to ensure that both the vehicles are focused properly. As of the current situation model S has a lot going on right now with the demand according to the company. These were some significant changes which the company brought to the strategy planned after evaluating the current trend of business.
  14. 14. CONCLUSION Tesla Motor’s formulated logical game plan is currently going smoothly. The company jump started an entirely new industry by avoiding bankruptcy. Firstly to begin with, the Company built a very exclusively expensive sports car which helped the company to get noticed. Then the plan was to step down and create a luxury car. In return for this model the Tesla motor received all kinds of awards from safety to the best car model. Not only this but also with this the company proved that the electronic vehicles can be taken to a new level where most of the people thought would never be possible. The demand for Tesla auto mobiles tends to increase model after model. In conclusion, the main 3 components are strategy formulation, strategy implementation and strategy evaluation and control. To start with the formulation Tesla Motors Inc stated its vision and mission along with the objectives and goals. Following with the objectives, a master plan was implemented for the company to achieve its vision. For smooth run of achieving its vision Tesla Motors ensures of the evaluation and what needs to be controlled of the strategies implemented. Therefore the main reason company postponed its next model to be released was due to evaluation of the market demand. Moreover the strategic role of the CEO, Elon Musk was discussed. Some of the strategies used are; no car dealers for Tesla, the technology sharing plan and the master plan implemented as the company strategy.
  15. 15. The company is to become the world’s leading Electronic vehicle supplier if the implemented strategy works out. REFERENCE  Kanellos,M.,(2014). Toyota Phasing Out Battery Deal With Tesla In Its Long Running Beef With Batteries. Retrieved from: www.forbes.com/sites/michaelkanellos/2014/05/19/toyota-phasing-out-battery-deal-with- tesla-in-its-long-running-beef-with-batteries/ on 15th July 2014.  Olsen, E., (2014).internal and External analysis. Retrieved from: http://onstrategyhq.com/resources/internal-and-external-analysis/ on 15th July 2014  Hirsh, J., (2014). Elon Musk Opens up Tesla patents to everyone. Retrieved from: http://touch.latimes.com/#section/-1/article/p2p-80485073/ on 15th July 2014.  August,N., (2013). Tesla 4th model-Affordable EV-To come in 2017. Retrieved from: http://evobsession.com/tesla-4th-model-affordable-ev-to-come-in-2017/ on 16th July 2014  Robbins, S., (N.D) What CEOs do? A CEO job Description. Retrieved from: http://www.steverrobbins.com/articles/ceojob on20th July2014  Aiken,C.B., Keller, S.p., (2007). The CEO’s role in leading transformation. Retrieved from: http://www.mckinsey.com/insights/organization/the_ceos_role_in_leading_transformation on 20th July 2014  Lorette, K., (N.D) what is Strategic Implementation? Retrieved from: http://smallbusiness.chron.com/strategic-implementation-5044.html on 20th July 2014
  16. 16.  Sage, S., (2010). Strategic Implementation. Retrieved from: http://onstrategyhq.com/resources/strategic-implementation/ on 20th July 2014  Thompson, N., (2014) Who shared the electric car? Retrieved from: http://www.newyorker.com/online/blogs/currency/2014/06/elon-musk-shares-tesla- patents.html on 22nd July 2014  Musk, Elon., (2014). All our patent belong to you. Retrieved from: http://www.teslamotors.com/blog/all-our-patent-are-belong-you on 22nd July 2014  Shukla, V., (2014). Tesla Motors Inc (TSLA) Gen III Model E Unlikely To Cost Below $48K. Retrieved from : http://www.valuewalk.com/2014/02/tesla-motors-inc-tsla-gen-iii- model-e-cost/ on 24th July 2014

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