BSS050 6 Strategic Management Assignment Sample
Introduction
As the name suggests, strategic management is the combination of different strategies that helps manage business activities appropriately (Kalinina et. al. 2021). Every company, be it an automobile company, a textile industry, a hospitality sector, or a technology-based business, requires a strategic management plan to set priorities and build focus and energy in their employees. Once the activities are strategized, achieving common goals and establishing agreements between two parties becomes easy. Here in this report, a detailed discussion about Tesla covers multiple strategic management tools (Wang and Peng, 2020). PESTEL, a significant management tool, is used by Tesla to analyze the internal and external environment of the market.
Similarly, the report will also explain a SWOT analysis, which helps companies make fundamental decisions based on the opportunities and business environment (GS and LS, 2020). The concept of strategic management was not common in the 18th century; however, with progress, companies started preparing documents to communicate the strategic plan to their employees. It is important to develop a strategic plan for every small and large-scale company because a definite strategic plan will allow employees to understand the organizational goals and vision (Dibble, 2018). The last section of the report will highlight its competitor of Tesla in the local and international markets.
Background
Tesla Motors, also known as Tesla Inc, is an American automotive and clean energy company based in Austin, Texas (Li and Biloshchytska, 2019). Tesla is a well-known automotive brand recognized for its manufacturing of electric vehicles, trucks, and cars, which helps in conserving energy through solar panels, grid-scale, and solar roof tiles. Since the company started, its CEO strategized its plans to remain the world’s most valuable carmaker. Today, with a market capitalization of more than US $1trillon, Tesla holds the world record of capturing 23% of the total electric cars across the globe (Jiang, 2022). The founder of the company, Martin Eberhard, tributes the famous inventor and electrical engineer Nicola Tesla by naming the company Tesla in 2003. Elon Musk, the chairman of Tesla, aims to provide a sustainable transport system to everyone. He decided to launch electric vehicles that could enhance ecological balance on earth (Puyt et. al. 2020).
Problem statement
Like other multinational companies like Apple, Microsoft, and Amazon, Tesla created an intense desire to manufacture electric vehicles in 2003 for the upcoming generation (Hoeurng, 2019). The reports showed that the company failed miserably to meet the market demands ten years back; however, the Tesla production increased within no time, making Elon Musk the wealthiest person across the globe. The underlying key issue with Tesla is how the company will maintain its position when competitors are aggressively investing in battery technology (Thumiger, 2021). Secondly, how can Tesla convey its branding to a bigger audience when the company aims to design the electric car only for the elite?
PESTEL Analysis
PESTEL analysis is one of the finest strategic management tools that should help Tesla overcome the internal and external challenges in the market (Lang et. al. 2021). For example, Tesla Inc.’s customer base is directly influenced by the cost of transportation and technologies used in the cars. Similarly, the profit percentage of Tesla can be enhanced by strengthening the brand image in the long term.
Political factors: Every business is affected by government policies; therefore, Tesla identifies the political impact of governmental incentives on its company (Alghalith, 2018). For example, policies can decrease industry performance and limit revenue. However, political factors can also be used as an opportunity for business. New global trade agreements for Tesla can be initiated when understanding the political factors of Tesla’s business.
Economic factors: Elements like market growth, currencies, trade levels, and other variables play an important role in influencing the economic conditions of an organization (Pieroni et. al. 2019). For example, the solar panel market growth rate is increasing, which is a trade opportunity for Tesla. Additionally, decreasing battery costs and renewable energy costs are some finest business opportunities in coming years.
Figure 1: PESTEL Analysis of Tesla
Social factors: Tesla is well aware of the changing social trends in the market that may affect employees, customers, and investors. It is necessary to focus on strategies that can maximize the benefits to Tesla (Yang et. al. 2017). The growth prospects of Tesla are on a constant rise due to its low carbon lifestyle popularity. Further, the wealth distribution system in the developing market can also prove to be a great business opportunity for Tesla.
Technological Factors: As Tesla is an automotive brand, the technological factor in PESTEL analysis is the most significant element for strategic management (Kalinina et. al. 2021). With every company comes its competitors in hand. Tesla also faces competition in the automobile industry. However, a high rate of technological alterations may be an opportunity and threat at the same time.
Environmental factors: Ecological sustainability is one major concern for all automotive companies; nevertheless, Tesla operates on the principle of a low carbon lifestyle that maintains the environment (Wang and Peng, 2020). Climate change is yet another business opportunity for Tesla where the organization can promote its electric vehicles on climate change. Moreover, electric vehicles, batteries, and solar panels are environmentally friendly friends that can cause significant growth in the market.
Legal Factors: Legal factors is all about the regulatory effect of laws and rules on Tesla. The HR department and business partnerships come under Tesla’s legal constraints (GS and LS, 2020). Tesla can safely expand its business in other countries by accepting international patent protection. Similarly, the growth opportunities can also be enhanced by promoting products based on energy consumption regulations.
Porter’s five forces and competition analysis
The mission of Tesla is to build a transition of sustainable energy in the world. Since 2008, there have been tough competition in the market where the demand for electric cars has increased gradually (Dibble, 2018). By analyzing Porter’s five forces, Tesla needs to turn its comparative advantage into a competitive advantage over time.
Threats of new entrants: Threat to new market entries is constantly rising because barrier probability is lower in the automotive industry (Li and Biloshchytska, 2019). Even when Tesla has occupied the major automobile market in the past decades, there exist competitors for fossil-fuel-powered vehicles, EV start-ups, and old-style automobile companies. Chinese companies like Nio, BYD, XPeng, and Li gain better competitive advantages because of the well-designed supply chain system (Jiang, 2022).
Bargaining power of suppliers: Bargaining power of suppliers is supreme because the supply chain network is very less (Puyt et. al. 2020). Most of the vehicle parts for Tesla come from Germany. Any economic or political disruption in Germany may negatively influence the EV production in Tesla.
Bargaining power of buyers: The intense market competition has decreased the bargaining power of buyers; however, Tesla segments its cars with premium pricing to maintain the competition in the market (Hoeurng, 2019). Furthermore, providing an innovative subscription model for luxury buyers can grow the network to the next level.
The threat of substitutes: Substitutes are extremely high as Tesla owns more than 1.2% of the total market share. The big automobile companies are working towards building a solid customer base to gain competitive advantages over Tesla.
Industry rivalry among competitors: From start-ups to big automotive brands, the industry rivalry is intense. In such a situation, the competitors use pricing strategies restricting Tesla’s profit and market growth (Thumiger, 2021). Tesla can lower the intensive competition by differentiating the product, place, and price in the market.
VRIO analysis:
The resources and capabilities of Tesla are the biggest drivers of competitive advantage in the market. Whatever Tesla owns in a business is considered to be its resources and capabilities (Lang et. al. 2021). VRIO is an acronym for the valuable, rare, inimitable, and organized framework that helps managers analyze the properties of resources. The below table provides a VRIO analysis of Tesla that can easily help the company gain competitive advantages.
Note:
Yes, for red
No, for yellow
| Core competencies | Valuable | Rare | Inimitable | Organized | Advantage |
| Brand Image | Competitive advantage | ||||
| Innovation | Competitive advantage | ||||
| Customer experience | Competitive advantage | ||||
| Product Range | Temporary Competitive advantage | ||||
| Market Position | Competitive advantage | ||||
| HRM | Competitive advantage |
When it comes to brand image, Tesla gains a core source of competitive advantage in its branding. Tesla is different from other automobile brands as it manufactures electric vehicles to establish a sustainable, eco-friendly business model (Alghalith, 2018). Brand image alters different elements in the automobile sector, ranging from popularity to sales and revenue. To gain a competitive advantage in technology, Tesla maintains their market position by innovating high-quality products with the latest technologies. Apart from the self-driving technology, Tesla offers higher convenience to the drivers. From the above analysis, it is clear that Tesla can gain a competitive advantage.
Similarly, customer experience also plays an integral role in enhancing the growth of Tesla. 56% of the total customers driving EV models had an excellent riding experience compared to the ride offered by rival vehicles (Pieroni et. al. 2019). The growing presence of Tesla in the United States, China, and Canada indicates that the majority of the world’s population is not navigating towards environmentally eco-friendly cars. The design and software of Tesla are its dynamic capabilities that have made Tesla build cool cars for the population. Tesla’s touch screen and autopilot are like no other car, making the car distinctive and luxurious.
Value Chain analysis
Tesla’s value chain analysis comprises five primary activities that can help Tesla gain competitive advantages.
Inbound Logistics: Tesla is an EV manufacturing company that requires tons of raw materials for its products. Inbound logistics allows Tesla to acquire raw materials and store the input accordingly (Yang et. al. 2017). Since Tesla provides specialized products, the company requires a large number of raw materials and scarce materials that can be used in the manufacturing process. As a result, Tesla comprises worldwide suppliers that provide raw materials on time.
Operations: With a large manufacturing unit, Tesla has different manufacturing plants in California, Netherlands, Shanghai, and China. To manage all the units, it is necessary to manage the operations systematically (Jenčová et. al. 2019). For this reason, the automotive section of the company includes design, development, and manufacturing, whereas the energy generation unit manages the installation, sales, and product storage activity.
Outbound Logistics: Handling, scheduling, transportation, delivery, and processing is all included in outbound logistics. Tesla must focus on an optimal cost strategy to deliver reliable products and services to its customers. Furthermore, the EV sales in Tesla are based on a vertical integration method that results in non-negotiable prices for electric cars.
Marketing and Sales: Unlike other companies, Tesla applies an unconventional model for marketing where marketing is initiated through word of mouth from its happy customers (Wang and Peng, 2020). Also, Tesla attracts a huge customer base through its latest products and unique features.
Services: Automobile companies have service centers to provide additional care services after the sales. Tesla also owns its service center, which can provide fast services to its customers (Kryvovyazyuk et. al. 2021). By the end of 2023, Tesla plans to include on-demand service vans to provide quick care services across the country. With this, Tesla could gain satisfied yet loyal customers.
SWOT Analysis
Tesla’s strength: Being the top employer company is one of its biggest strengths of Tesla. A report published by the Wall Street Journal states that Tesla has emerged as the ideal company for employees where the working culture is innovative and encouraging (Li and Biloshchytska, 2019). Tesla is also among the most valuable automotive companies that the world has noticed. From $54 million in 2008 to $1 trillion in 2021, Tesla surpassed major automobile companies like Volkswagen, Toyota, Ford, and Daimler. Lastly, Tesla delivered more than 940,000 vehicles, increasing its production from 78% in 2010 to 87% in 2020.
Tesla’s weakness: Manufacturing complications and unable to meet the demands might severely affect the brand value. Tesla aims to mitigate its weakness by meeting the unbalanced supply and demand (Puyt et. al. 2020). Higher technology and mechanical complications have created manufacturing challenges for Tesla as soon as the Model X was launched. Similarly, the company leads to constant distribution delays due to manufacturing defects in the Model X battery and assembly line. Undoubtedly, Tesla is the world’s largest producer of energy-saver cars, but it has failed to generate high volumes for its cars. The shortage of batteries was also discovered as one of the weaknesses in Tesla.
Figure 2: SWOT Analysis of Tesla
Opportunities in Tesla: SWOT analysis is one of the effective management tools that help understand opportunities, threats, strengths, and weaknesses. The Asian market provides the greatest opportunities for business expansion. Tesla requires global expansion to increase its financial stability; therefore, Asian markets are best for Tesla’s growth.
Threats in Tesla: With every opportunity comes several threats which are important to address. Product liability claims and extensive competition are the most immediate threat to Tesla (Thumiger, 2021). Despite the elite quality and high standards of product, Tesla faces liability claims which can develop financial blows in the future. Alternatively, aggressive competition in electric vehicles has increased the competition recently.
Conclusion
The following framework discusses different methods for strategic planning and management in Tesla, Inc. While there are no perfect rules for strategic planning, similar patterns and attributes can always be applied to achieve the goals of any company. Since 2003, Tesla has been determined to formulate high-level strategies that can help the organization achieve sustainable management. Other parameters like performance evaluation, communication, culture build-up, and rewards come with strategic management and planning. A detailed PESTEL analysis was discussed in the essay where political, economic, social, technological, environmental, and legal factors play an integral role in shaping a company.
Followed by the PESTEL analysis, a value chain, and VIRO analysis were also conducted to sustain competitive advantages in the market. Building and evolving Tesla throughout the decade was not an easy task; nevertheless, people say that Tesla was an overnight success where management activities changed into a static plan providing huge success to the company. The strategic management steps at Tesla were used incorrectly to achieve absolute goals in the past ten years. From company assessment to understanding the internal and external environment, every strategic plan was documented so that plan could be executed successfully.
References
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Pieroni, M.P., McAloone, T.C. and Pigosso, D.C., (2019). Business model innovation for circular economy and sustainability: A review of approaches. Journal of cleaner production, 215, pp.198-216.
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