Introduction
“Tesla may have saved my life today” (Johnson, T., 2013). Tesla Inc., an electric car making company focuses highly on innovation and environmental sustainability and they have become an important player in their industry. Due to their innovations such as the autopilot, the company has managed to prevent multiple crashes and save the lives of many. They have made themselves known worldwide over the last years. In the following Tesla itself will be evaluated in terms of structure, strategy, internal environment and effectiveness and efficiency.
Company Details
The company Tesla Inc., founded in 2003 by Marc Trapanning and Martin Eberhart, specializes in electric car making. Its headquarters are located in Palo Alto, California and current CEO is Elon Musk. He joined the company in 2004, was announced CEO in 2007 and his name is well known in conjunction with Tesla. Nevertheless, Elon Musk had to step down as chairman due to a scandal concerning his announcement of wanting to make the company private, which did not go through.
Looking at the company itself, Tesla is currently mainly doing business in North America, Asia and Europe and their worldwide revenue is 11.8bn USD. Since its founding Tesla has experiences major losses, in 2017 1.96bn USD and in the first quarter of 2018 708.55 million USD, actually their biggest quarter net loss in the company’s history. Nevertheless, Tesla has now, in the third quarter of 2018, managed to achieve its first profit. Furthermore, what is interesting to note, are their spendings on Research and Development, which are said to be at 1.4bn USD. This really relates to Tesla’s mission statement of wanting “to accelerate the world’s transition to sustainable energy” and having a full focus on achieving sustainability through innovation. Tesla offers an all electric car model range consisting out of the Model S, Model X, Model 33 and a planned semi and roaster. They have managed to deliver around 41.000 vehicles in the second quarter of 2018 and the Model S is currently marked as the best selling all electric car in the US. Another key thing to remember, Tesla currently produces all its vehicles in its factory in California, but plans for a factory in China are in motion.
Tesla itself currently has 45.000 employees and a US market share of 2.08%, compared to its biggest competitor Ford, with 15% relatively low. Other substantial competitors are the BMW Group and Nissan. Having said that, it is important to note that other car manufacturers are not only seeing Tesla as a competitor, but are also benefiting from Tesla’s innovations. For instance, the Toyota RAV4 is equipped with a Tesla produced battery.
Adding to its business in the electric car making, Tesla also focuses on manufacturing energy solutions such as Powerwalls, Powerpacks and Solar Roofs. Furthermore, the company owns a so called Gigafactory in Nevada which produces the batteries used in the Tesla vehicles.
Lastly, after having focused on Tesla’s operations and having put a focus on its significant losses, it is interesting to note that before the announcement of profit in the third quarter, Tesla’s stock prices were valued at 294,14 USD, a substantial amount regarding its past. This clearly indicates how the world believes in the future of sustainable energy and therefore sustainable, all electric vehicles.
Organizational Structure
Tesla’s organizational structure allows the company to expand and lets business grow. However, thinking about Tesla’s limited operational expansion in the global market and the company’s control and managerial focus it has a traditional form of organizational structure. Tesla has a functional organizational structure. According to an article in Panamore, Tesla‘s characteristics of organizational structure are function-based hierarchy, centralization and divisions (Meyer, P., 2018).
Function-Based hierarchy contains offices and functional teams that oversee international and domestic corporations (Robbins, et al., 2006). In the global organization of Tesla‘s corporate structure, the most significant characteristic is a function-based hierarchy. Companies that target to keep harsh managerial control of their operations usually apply this feature in traditional corporate structures.
Global Centralization is a process which concentrates decision making and planning within a specific location (Robbins, S., et al., 2006). In its corporate structure, Tesla is using global centralization. All Tesla’s operations are directly controlled by the central headquarters which is formed by the heads of the offices of the global hierarchy. Tesla’s regional or overseas offices autonomy is supported minimally, and the decisions for overseas operations are mainly made by the company’s headquarters.
In Tesla’s corporate structure there are two main divisions, energy generation and storage and automotive. In comparison to the function-based hierarchy, these divisions are less critical. Furthermore, the organizational structure of Tesla has divisions that are used for financial reporting mainly in the United States, China, Norway and other. Because of divisions in different countries and targeted at a specific audience by allowing customers to choose the set up of the automobile and customize it Tesla is using the multi-domestic structure.
Even though Tesla is unique and differs from other companies, it may be hard to describe its organizational structure. Being specific “Tesla, unlike most companies its size, doesn’t have any known management structure. There’s no organizational chart or public list of senior leaders.”. Despite that, Tesla’s Organizational Structure can be characterized as divisional, see Appendix A. The organizational structure of Tesla contains various types of divisions: sales, legal and finance, energy, engineering and production, Software and HR and communications, and only Software has one Vice President. Set side by side to other companies, Tesla contains less bureaucracy and this way benefits from a divisional organizational structure. Also, the Divisional organizational structure makes it easier for Tesla to communicate faster between separate layers of management with the flexibility of the business and positive implications on decision making. Following that it is believed that Tesla has an international product divisionalization, and since Tesla is so flexible it has organic structure.
Advantages and Disadvantages of Tesla corporate structure
The first advantage would be that the field of active managerial control of multinational operations is where Tesla benefits. The second advantage is that Tesla can quickly implement new strategies in the organization. Furthermore, The regional divisions perceive the foundation for future regionalization of tactics and policy in the international automotive market and support financial reporting and analysis. Benefits, as mentioned above, allow Tesla to use its organizational structure for to build competitiveness against other car manufacturers, for example, BMW, Volkswagen, Nissan Motor Company and others and helps for further international growth. The company can easily control the advancement of competitive advantages because of organizational structure.
The first disadvantage of Tesla‘s corporate structure would be the stability that makes it harder to adapt to the organization quickly. For instance, the autonomous ability of offices overseas to appropriately react to problems they face in their regional markets is limited by global centralization. To remove this disadvantage, Tesla should change its organizational structure to enhance the level of autonomy overseas. Moreover, Tesla create less competitiveness against local firms in overseas markets because it has a low degree of decentralization. Tesla could be more effective in competing with other firms with a higher degree of decentralization
Strategy
When Tesla started they entered their market with expensive high technology cars for the higher class people (Dutta, A., 2017). Once they had a market share, they started to become less exclusive and affordable for normal people. They had to get a good name first and be widely known to make this possible. Tesla is different than other manufacturers because they prefer to sell directly to the customer to speed up their product development. Tesla has also a well-known face; Elon Musk, this is also part of their strategy. This is the way Tesla advertises, Elon Musk can tweet something and the whole world will know what has happened at Tesla. The most important part of Tesla’s strategy is the build electric cars which are better than the electric cars from competitor’s. Tesla’s cars can go a longer distance and has an emission-free travel. For this Tesla uses four strategies: Market penetration, Product development, Market development, and Diversification.
Long-term goals
One of the main goals of Tesla is to show people and especially competitors that it is possible to be more environmentally friendly (Ayre, J., 2018). A few of the small goals are developing a self-drive capability, which will be 10 times safer than people driving and enabling the cars to make money when the owner does not use them. They are trying to achieve these goals by doing much research and giving the research also to other companies and not keeping the information for themselves.
Tesla’s strategies
Tesla has four different strategies which they use. The first and most important one is market penetration. The goal of this strategy is to get as many sales as possible in the current markets in which the company is (Rowland, C., 2018). Tesla uses aggressive marketing to maximize their sales by selling more electric cars. In this way, Tesla will develop a competitive advantage based on an increased market share. The second strategy is product development, this strategy is about creating new products to get a larger market share. Tesla creates new products to get more sales (Rowland, C., 2018). The new products are more environmentally friendly and use new high technology. This strategy supports the differentiation strategy which Tesla uses. The third strategy is market development, in this strategy a company enters new markets. Tesla does this to generate more sales (Rowland, C., 2018). For example, Tesla gets more offices worldwide to enter markets in other countries. One of Tesla’s missions is becoming the leader in the automotive industry and this strategy supports that. Tesla established alliances with local companies to make it easier to enter the markets. The fourth strategy is diversification, with this strategy a company makes other products than the competitors to create more sales. Tesla uses this strategy but it is not one of their main strategies. This strategy helps Tesla grow through a new business creation. Tesla increases the likelihood of survival by using the diversification strategy. Tesla focuses most on market penetration and product development to grow as a business.
Miles and Snow
One of Tesla’s main strategies is product development, this fits with a prospector perspective. A prospector is a company which experiences a lot with products, they are always trying to make new and better products which will sell (Robbins, S., et al., 2006). In the figure is seen that Tesla uses much more money for R&D in comparison to their revenue than other car companies. This makes Tesla a prospector because they are trying to be innovative and doing research in getting better products.
Porter
Tesla’s generic competitive strategy is broad differentiation. This generic strategy builds a competitive advantage based on the development of products that differentiate the company from other firms in the industry (Rowland, C., 2018). For example, Tesla is more environmentally friendly than all the other energy companies. By using this strategy, the company attracts many people all over the world, especially the ones who are interested in keeping the environment clean. Tesla uses the differentiation strategy of Porter. This strategy is making the products more attractive and different than the products from competitors. (Robbins, S. et al., 2006) A company needs good research and development and must have the possibility to deliver high-quality products. Tesla has both and with their electric cars, they are trying to differentiate from all the others. By applying the differentiation strategy Tesla emphasized the uniqueness of its products in comparisons with competitors.
Global or Multi-domestic
Tesla’s strategy at this moment is to reduce costs, which they do by global standardization. They have a few models from which customers can choose. However, a customer can choose the color of the car and other small things, this does not make the strategy multi-domestic. They do not respond to local preferences. The strategy which Tesla uses is the global strategy. This strategy uses the same product all over the world to achieve low cost (Robbins, S. et al., 2006).
Recommendations
One of the main recommendations for Tesla is to sustain innovative superiority. It is important that Tesla keeps taking risks to generate more sales. Tesla has to focus on becoming even more environmentally friendly and using high tech technology. To do this, Tesla has to keep using much money for R&D.
Another recommendation is to look at the places where the cars are not being sold and expand in those which offer potential customers and therefore more sales. Adding to this, as Tesla is currently only producing in California, transportation and other costs are high. The company needs to open more factories, such as the planned factory in China, in order to increase efficiency. Furthermore, this means that Tesla should decentralize. For example, their department of Solar City would be more free in researching better innovations. The recommendation here is for Tesla is to concentrate on lessening power and trusting their departments.
Internal Environment
Culture
Tesla’s mission statement of wanting “to accelerate the world’s transition to sustainable energy” really relates to the innovative-problem-solving culture of the company as defined in an article by Panmore (Meyer, P., 2018). Tesla is trying to find profitable solutions, so all electric vehicles, to current and emerging problems in the market, meaning environmental issues. Looking at the culture itself, one can clearly see that Tesla’s employees work there because they believe in the earlier stated mission, which indicates a strong culture.
In terms of values, it is possible to distinguish between terminal and instrumental values (Robbins, S., et. al., 2006). On the on hand, terminal values focus on an end state, in Tesla’s case, achieve fast innovation and environmental sustainability. On the other hand, instrumental values focus on the wanted behavior of employees, in this case, full focus on work, motivation and engagement. These values can be clearly seen in Tesla’s stated values. These are first, “move fast”, second, “do the impossible” (Meyer, P., 2018). Furthermore, “constantly innovate”, “reason from ‘first principles’” and “think like owners” (Meyer, P., 2018). Tesla’s last value is described as “we are all in” (Meyer, P., 2018). These values again relate to the mission of sustainability though innovation and show the company’s clear emphasis on innovation, rapid responses and solving of problems.
Nevertheless, Tesla’s values also cause a disadvantage such as pressure to innovate on employees and a strain on human resources. Furthermore, constant innovation leads to constantly changing strategies and processes and Tesla is said to sometimes have issues in communicating these to all employees, cause damage to the company.
Tesla is said to have a work-life balance problem due to long hours and hard work which are again reflected in the company’s values. Due to this problem, Elon Musk has proposed a “Home form Work” program. He stated that housing should be build by the office to gain even more in efficiency. Nevertheless, families are not allowed to live in these proposed housing facilities. Concerning the work-life balance problem, Musk responded with “[…] work is life and life is work […]” (Medium, 2017). In his opinion the balance problem does not exist, because he sees the two as the same and therefore as balanced. Employees that disagreed with his proposal supposedly also do not agree with the company’s values, according to Musk, and in his opinion these employees should reconsider their choice of company to work for.
Introducing one of the benefits of Tesla’s culture, one can focus on the lack of bureaucracy. Musk puts a high value on everyone being able to talk to everyone as seen in the “skip level meetings”. Tesla’s meetings consist out of only four to six people and only those are supposed to attend that are relevant to the topic discussed in these meetings, no matter if top, middle or lower management. Elon Musk also stated in an interview published by the School of Self on YouTube, that in these meetings contribution and engagement are required and that is it actually seen as rude if an employee stays if they do not contribute anything relevant.
Tesla offers benefits such as health and life insurance, financial benefits and also 16 weeks paid maternity or 7 weeks paid paternity leave, to its employees. Nonetheless, no rewards are given since the “knowledge of playing part in reshaping the green technology is reward enough”. This again undermines the company’s values.
Another interesting thing to note are changing sets of signs on the side of the road to the Tesla’s offices in California. These were thematized in an article by the Ritual Design Lab and they are supposed to be motivating and bonding messages targeting Tesla employees.
Knowledge Management
Moving on to knowledge management at Tesla, one can see that the company is constantly innovating and taking risks. Therefore learning and sharing knowledge are two major aspects for the company. Looking at one of Tesla’s innovations, car models with full autonomy, one can see that the company has had scandals of drivers dying in car crashes. Nevertheless, due to its ability of sharing knowledge of the data concerning why the crashes happen, such as warnings by the autopilot, Tesla was able to avoid the damage these scandals could cause. According to the Guardian, a recent crash caused by the Tesla autopilot on March 23rd 2018 has raised questions concerning safety of the cars (Levin, S., 2018). Even though, as stated above, Tesla was able to provide data to the public stating that the driver “did not intervene during the five seconds before the car hit the divider” (Levin, S., 2018), people are wondering if Tesla is having technical issues that are obviously not being addressed (Levin, S., 2018). Nonetheless, Tesla responded to this issue, which indicates that the company is not working on revising their security by saying that “the consequences of the public not using Autopilot, because of an inaccurate belief that it is less safe, would be extremely severe. There are about 1.25 million automotive deaths worldwide. If the current safety level of a Tesla vehicle were to be applied, it would mean about 900,000 lives saved per year” (Levin, S., 2018). This can be confirmed due to stories of many as to how Tesla has saved their lives.
To constantly foster their knowledge, Tesla acquired the company Solar City in order to develop renewable battery technology, innovate and learn in all areas. They have managed to change the world’s thinking of energy storage by offering a solution to store solar power overnight. Furthermore, Tesla is known to share not only knowledge, but also patents with others. Moreover, they hereby put a full focus on making the world more sustainable.
Nonetheless, Tesla does have some problems with its current CEO Elon Musk. As already stated, he had to step down as Chairman due to the former mentioned scandal, but in his opinion this will only cause for more innovation. Having said that, one can notice that Tesla is unstoppable in achieving its mission. Nevertheless, CEO Elon Musk has to understand that the scandals caused by him also due to its Twitter activity are damaging the company.
Another aspect to note is the not hit target for Model 3 and how Tesla learned from their mistake. The company realized that they were not able to hit their targets due to the usage of too many robots. Tesla realized that more humans are needed and after this having acquired this knowledge, Tesla actually managed to improve, producing more cars than in any previous quarter in the 2nd quarter of 2018.
After having looked at all these aspects, one can clearly see that Tesla facilitates knowledge management due to a supportive culture and an appropriate structure which promotes the sharing of information (Robbins, S., et. al., 2006). Furthermore, the appropriate usage of technology due to its efforts in developing new technologies by acquiring Solar City and its ownership of the battery producing Gigafactory.
Recommendations
Tesla has a strong and innovative culture that requires for its employees to work hard to make the world more sustainable. The company’s efforts to share knowledge bring it one step closer in achieving its mission “to accelerate the world’s transition to sustainable energy” and furthermore make it able for the company to acquire the trust of its customers. Nevertheless, as recommendations, Tesla, especially Elon Musk, should not underestimate the work-life balance and show more understanding towards his employees. A possible solution would be housing but with the option of bringing family. This would make it possible for employees to be more efficient, but still enjoy the benefits of a personal life. Another option would then be offering day care for employees children, which would give the employees the option to to return to work earlier after child birth and also reduce stress in their lives. Adding to that, Elon Musk should refrain from using Twitter in relation to Tesla. As CEO it is important to be rational and act in the best interest of the company. If Musk does not manage to do this, Tesla should consider hiring someone else as CEO. Furthermore, as a recommendation, Tesla is in need of addressing their technical issues instead of blaming the drivers for crashes. Providing more data or even video footage could be a solution in making the public feel more confident about the vehicles safety.
Evaluation
Tesla Inc. is a complex company that operates in a demanding environment with many competitors. When wanting to evaluate the company’s effectiveness, one has to take a look at the achievements of Tesla’s long and short term goals. Focusing on an example of their short-term goals, Tesla’s delayed production for Model 3 can be looked at. The company did not manage to hit this goal and it can therefore be seen that there is a need for improvement. Nevertheless, as stated beforehand the company actually managed to improve their production and has now announced their first profits. Their long-term goals are making the world more sustainable and being successful as a company. Tesla is on a good way to hit this goal by constantly announcing relevant innovations and sharing their knowledge. Furthermore, they are likely to have a future advantage due to their Gigafactory, because Tesla is able to produce batteries cheaper and faster due to economies of scale. Until their competitors reach this point Tesla is going to be able to produce also their vehicles faster and make them more affordable for all.
There are different approaches to fully assess a company’s effectiveness, such as the Balanced Scorecard Approach. This approach is striving to balance the demand on and organization with its capabilities and it focuses on four aspects, financial, customer, internal and innovation and learning. Each of these aspects can be worked out when looking at Tesla. Financially, Tesla has had substantial losses, but managed to keep a high stock price, showing that the company’s shareholders believe in Tesla’s mission and see its future. Furthermore, Tesla has now managed to achieve profits, showing that they are effective on a financial scale. Concerning customers, Tesla is perceived as sustainable and has managed to build a positive image by delivering relevant innovation. Nevertheless, the company has lagged behind with their production in the past and this is causing for customer dissatisfaction. When looking at the internal aspect, one can see that Tesla itself will, as already mentioned have an advantage due to its Gigafactory and their fast pace and constant innovations. Nonetheless, a healthy work-life balance is missing which can create a disadvantage for the company. Lastly, taking a look at innovation and learning, Tesla is a very innovative company, that is sharing their knowledge. They are not only innovating in the car production, but also in the energy and battery sector. Therefore, Tesla is managing to constantly create value for the environment and also governments.
After having evaluated this information, it is important to also consider Tesla’s efficiency. As already known, they have had losses in the past, but have just announced their first profit. Tesla is constantly working on bringing their costs down which can be seen due to their efforts in obtaining and improving energy sectors and the Gigafacory which makes economies of scale and therefore cheaper and faster production possible. Adding to that, the company is planning on building a factory in China which would reduce transportation cost and further improve the efficiency.
To conclude, Tesla is on a good way to be effective and efficient as a company, but they need to keep working on improvements to bring costs down, reduce scandals and improve production in order to continue gaining profits.
Overall Recommendations
After having evaluated Tesla, one can see that with its current processes the company is in general on a good way to achieve success. Recommendations on the multiple aspects named have been given and these will be summarized in the following. In terms of structure, Tesla should work on changing its corporate structure to a more autonomous one by giving divisions more responsibility and authority to make their own decisions. This will lead to more precise ideas relating to, for example, different country preferences. Furthermore, this would indicate a, as recommended, more decentralized structure. Concerning strategy, Tesla should open more factories apart from the one in California to reduce transportation costs and promote faster production. This can be achieved by either building factories in low-wage countries or close to big markets or merging with existing factories. In terms of Tesla‘s internal environment, an important recommendation is for the company to focus and show understanding of the work-life balance. The idea of housing at the office could be improved by letting families of employees live there as well and also offer additional benefits. Furthermore, the company needs to address its safety issues in a different manner. Publishing results of safety tests could be an additional solution to increase trust of customers.
Conclusion
To conclude, Tesla has managed to make its name since its founding and is known today for excellence in innovation of all-electric vehicles and solar energy. Even though, the company still has a long journey to success, one can see that its structure and strategy contribute to its goal of achieving environmentally friendliness and its effectiveness and efficiency. The production of all electric cars will be an important topic of the future and Tesla is going to have an advantage due to its prospector focus, but also its production, suppliers and its focus on making safe and luxurious cars slowly affordable for everyone. By working with competitors, Tesla is ensuring itself a solid standpoint in the market niche they have chosen and also a dependence of others on their products, for example the Toyota RAV4 on the Tesla produced battery. Tesla has managed to create a vision for customers and employees that is relevant to the environment and personal preferences. The company has made innovation its main focus, which is reflected not only in the values, but also in the CEO Elon Musks attitude. If Tesla manages to continue delivering relevant innovation, one can say that the company has a bright future ahead as indicated by its just achieved profits.