Strategic Management: Formulate The Business Organizations Essay

Question:

Discuss about the Strategic Management for Formulate the Business Organizations.

Answer:

Introduction

Business organizations formulate their objectives before making the strategy. Future endeavors of the organizations depend on the current operations of the business and the position of the organization within the market. According to Eberhard & Tarpenning (2014), therefore, the assessment includes analysis of all the past and present data related to implementation of business strategies. They opined that the process of strategy development is known as “Strategic management”. Tesla Motors is one such company that stresses upon strategic management. Eberhard & Tarpenning (2014) stated that it belongs to automotive and renewable energy storage systems industry. Martin (2014) opined that in 2013 Tesla Motors was established and now it is one of the leading companies of the world with more than 50,000 vehicles of it roaming worldwide. The overall revenue generated by the company in 2015 was US$4.04 billion ("Tesla", 2016). The strategic management for the company will now be discussed in this essay.

Current product-market approach

According to Martin (2014), Tesla Motors have not only made cars but also emphasized on energy storage systems. The diversity of work that they have been doing since their inception brought them prosperity. As Liu et al (2014) discussed, the power-train technology is the innovation of Tesla Motors. Their first Roadster model of Tesla gave the drivers a similar driving experience of a traditional gas engine. According to Rothaermel (2015), with time, the production of recent Roadster models became slower posting a challenge on Tesla Motors. The company started developing the future strategies for sustenance. As a result, in 2012 they came up with EV family sedan. Previously, they never focused on family segment. However, the invention of Model S worked for them and in the next few years, they decided to work on limited orders of vehicles to develop a target-oriented production capacity. Tesla made a plan to give its customers better knowledge and experience about their Electric Vehicles (EV). According to Mangram (2012), the strategy was to enhance the reliability of the customers on Tesla’s EV capabilities before Model X was introduced in 2014. It was a part of Tesla’s strategy to develop the “early adopters”. Mangram (2012) stated that in addition, Model S was their first attempt to make a mid-sized vehicle. Model S was sold in half of the Roadster’s price and thus Tesla cars became available to the middle-class people. Both these products have been providing Tesla with consistent profit. However, Tesla lowered the price of cars following the business approach of Silicon Valley firms, and other technology industries worldwide where the prices of laptops, and cellular phones decreased dramatically. They shift the company’s objective by stressing more on high-end segment of the market. In global market scenario, rarely any company has taken such a risk. ("Tesla", 2016)


Since its inception, the objective of the Tesla has been to produce cars and initiating the transition to Electronic vehicles. The EVs save fuels and also perform better than the motor cars. As discussed by Birk (2015), Tesla’s past and current strategy includes the following:

Produce and sell their Electronic Vehicles

Sell parts of electronic power trains to other car manufacturers

Become a role model in EV making business

Moritz et al (2015, August) opined that as a part of implementing these strategies, they have developed an integrated power train technology. It is made of lithium-ions cells having a high level of energy density, a set of power electronics controlled by software, a cooled battery pack, an A/C induction motor, and a gearbox containing RPM single-gear. According to Moritz et al (2015, August), the ranges of the Tesla Roadster and Tesla Model S are 245 miles and 300 miles respectively. As discussed by Wu et al (2015), it is greater than the Ford Focus EV, Chevy Volt, and Nissan Leaf. In manufacturing low-priced batteries, Tesla holds the top position in the market. According to Park et al (2014), whereas the competitors of Tesla sell it for $650 per kWh, the amount in Tesla is $400/kWh. The Model S sedan, which is the most affordable car produced by Tesla has distinguished features. It has more cargo room compared to the other sedan cars, wireless 4G connectivity, 17-inch touch screen computer, quick recharge for 45 minutes and some other lucrative features. Definitely, the strategy is to provide the customers not only with a great millage but also with a technologically advanced experience. Thus, the customers enjoy both necessity and luxury. They added that the Model S sedan satisfied the needs of different customers. Tesla planned to provide the customers of Model S sedan with additional offerings to increase the demand. Reportedly, the strategy has gained for Tesla more than 60,000 orders specifically for the electric sedan cars. As an extension of this strategy, Tesla made plans to launch other crossovers, vans, SUVs and sedan cars based on the adaptable power train. Such a strategy needs both money and time.

Distribution strategy

Tesla’s distribution strategy emphasizes on controlling its own service and sales operations leading to earn desirable revenue and get customer’s feedback. Moving out from the traditional dealer network system, they have taken the storefront approach towards the customers. According to Cheong et al (2016), this automotive distribution system puts the dealers in an odd situation regarding the inventory and the service. They do not store the cars at the dealers’ place; rather they have taken the just-in-time delivery approach. They use online services as a part of distribution system. According to Chen & Perez (2015, June), the stores are medium-sized and without any huge floor space because it does not carry the large inventories. It is a shift from the traditional approach. However, Tesla is facing various legal challenges by implementing this strategy. As Bohnsack et al (2014) pointed out that many states having strict laws concerning online purchase, and many countries that do not allow the direct transactions between manufacturer and customer are stopping Tesla from expansion.

Marketing and sales strategy

According to Lee et al (2015), Tesla follows the marketing and sales approach of Silicon Valley firm, which is a shift from the traditional system of marketing. The current marketing structure is based on the retail strategy that is found in Apple. Chen & Perez (2015, June) discussed that Tesla has hired the former architecture of Apple retail model George Blankenship. The strategy is to encourage the customers to get knowledge about Tesla’s technology. They mentioned that there is no “don’t’ touch” signboard for the customers. As the objective of the company is to not only to develop present customers but also to pave the way for the future customers, they have not restricted anyone of any age to experience Electric Vehicles that Tesla offers. For that, they felicitate the customers with the touch-screen interface experience, virtual Design studio, and product experts to develop a transparent manufacturer-customer communication. As opined by Lee et al (2015), the virtual Design studio of the Tesla is the best configuration that any automotive manufacturer has offered till date. It enables the customers to find out their exact necessity. Again, the product experts in the stores use iPads while explaining anything to the customers. The current showroom of Tesla in Santana let the customers design their own products on a large screen through swiping over the virtual parts of the cars. Such a new strategy is lucrative to the customers and as an extension of this approach; they have designed the exterior of their stores in a modern way.

Wu et al (2015) discussed that Tesla have 16 stores in various places of United States, 2 stores in Canada, 3 stores in Asia/Pacific, and in Europe they have 13 stores. Most of the stores look like galleries, which is again a shift from traditional look of the shops. All stores exhibit Model S sedan outlining the Tesla’s offerings to the customers. The strategy is to control their costs of productions, manage the warranty related service, and strengthen Tesla as a brand besides enhancing the customer’s satisfaction.

Service strategy

Tesla’s service strategy includes acknowledgement of customer’s feedback. According to Martin (2014), they follow the service strategy of Zappos.com, which is shoe retailer, and the computer repair service “Geek Squad”. According to Schuller et al (2014), adopting the Best Buy concept, Tesla’s retail shops provide the customers with house call options that involve annual inspections and upgradation of firmware. He opined that the cost of service is minimum $100. It is very cheap if comparing to the expenses. However, the strategy is taken because development of service centers is more costly comparing to the loss. The aim of Tesla in making this strategy was to remove the conflicts and confusion found in the traditional dealership system.

Corporate culture strategy

Tesla has always wanted to offer something different. To fulfill this aim, they have formulated a different corporate culture. As discussed by Birk (2015), they hire people who are interesting in moving out of the box. They encourage employees to take challenges shifting from the traditional model of business structure. Birk (2015) added that Tesla has taken the help of Arnnon Geshuri for development this new kind of corporate culture. Geshuri is known for his contribution in Google.

Current strategic challenges

At present, Tesla is the only company to manufacture electric vehicles. The advantage of Tesla is that they are concerned about environmental issues as they produce all electric vehicles, which are environment-friendly. Again, the customer’s of the niche market are happy with the EVs due to the high price of gasoline. As discussed by Birk (2015), Tesla-Panasonic collaboration in development of lithium-ion battery cells having a nickel base is giving positive results to them. The biggest challenge for Tesla is that they compete with larger resource driven car manufacturers along with a greater market share. Many new companies that are venturing into making the EVs are the recent threat to Tesla. According to Martin (2014), the already existing companies such as Toyota, Nissan, Daimler, Ford, Honda and Chevrolet are also making Electronic Vehicles. Tesla is unable to compete with the resources of these companies. Much of the business investments of Tesla are done through debt resulting into a consistently low net income rate. According to Clark et al (2015), Electronic vehicles might be a user-friendly, yet it is not the demand of majority customers.

Future strategy

According to Martin (2014), Tesla Motors has their competitors including Chevy Volt that emphasizes on developing the EVs. Toyota, on the other hand, introduced an electric version of RAV4. These two companies are giving Tesla serious competition although Tesla Motors is reputed in having a better performance and better range than the other two companies have. Analyzing the current scenario, the two critical issues can be encountered. These are as follows:

What should be the plan for the future?

What should be the direction of the plan?

After analyzing all the product-market, service and distribution models that Tesla follow, some of the recommendations for at least the next five years will be outlined now.

At first, Tesla need to create demands for the all Electronic Vehicles otherwise, it is difficult for them to survive. Tesla must explain the necessities of owing an EV. Not only the advanced technology that they offer should be addressed but also the environmental issues related to EVs should be highlighted.

Tesla need to change its sales model for those countries where they encounter issues related to manufacture-customer relationship direct transaction. In most areas of United States, they can use the dealership structure for the expansion of the market.

Tesla can come up with two-segments of cars. One that is fully electronic and have an unique approach; and another that satisfies the broader range of customers. They should target the middle class people who dream about owing a car. For the, they can come up with innovative models of motor cars.

Tesla can make more Trucks and SUVs as it has specific demands in the market.

Tesla has been targeting the upper middle class consumers. To expand the sales it should focus on market segmentation. As already stated, they can come up with SUVs and Trucks, and produce low-priced innovative models of motor cars along with the EVs. Thus, they should enlarge the target customers.

For the maintenance of the cars, Tesla needs to have limited dealerships. It unburdens the responsibility of maintaining a large number of cars. Especially, for the expensive cars, they need the help the dealers for the purpose of storage.

Conclusion

As a company, Tesla Motors have various advantages and drawbacks. The objective of the company should be the understanding of its advantages and utilizing them for the expansion of its market. The strategy of the company should involve gauging of its drawbacks. The market structure of Tesla is innovative and modern. However, their focus should also be to increase the demands for the Electronic Vehicles. The recommended strategic planning has outlined these issues.

References

Birk, D. (2015). Tesla Motors, Inc. Market Analysis and Definition.

Bohnsack, R., Pinkse, J., & Kolk, A. (2014). Business models for sustainable technologies: Exploring business model evolution in the case of electric vehicles. Research Policy, 43(2), 284-300.

Chen, Y., & Perez, Y. (2015, June). Business model design: lessons learned from Tesla Motors. In Gerpisa Conference, ENS Cachan, Paris (pp. 10-12).

Cheong, T., Song, S. H., & Hu, C. (2016). Strategic Alliance with Competitors in the Electric Vehicle Market: Tesla Motor’s Case.Mathematical Problems in Engineering, 2016.

Clark, J. R., Stringham, E., & Miller, J. (2015). Overcoming Barriers to Entry in an Established Industry: Tesla Motors. Available at SSRN 2746171.

Eberhard, M., & Tarpenning, M. (2014). The 21st Century Electric Car Tesla Motors.

Lee, M., & Jay, J. (2015). Strategic responses to hybrid social ventures.California Management Review, 57(3), 126-148.

Liu, Y. E., Kang, Y., Wu, H., Chen, C., & Hon, E. (2014). Tesla Motors Inc. Case Synopsis. Burnaby BC: Simon Fraser University. Retrieved, 10(18), 2014.

Mangram, M. E. (2012). The globalization of Tesla Motors: a strategic marketing plan analysis. Journal of Strategic Marketing, 20(4), 289-312.

Martin, C. (2014). Driving change in the battery industry. Nature nanotechnology, 9(5), 327-328.

Moritz, M., Redlich, T., Krenz, P., Buxbaum-Conradi, S., & Wulfsberg, J. P. (2015, August). Tesla Motors, Inc.: Pioneer towards a new strategic approach in the automobile industry along the open source movement?. In2015 Portland International Conference on Management of Engineering and Technology (PICMET) (pp. 85-92). IEEE.

Park, J., Rast, J., MacDoughall, T., Nitti, B., Sinton, D., Geissler, A., & Roseli, K. L. (2014). Marketing Plan for Tesla Motors’ Model S.

Rothaermel, F. T. (2015). Strategic management. McGraw-Hill.

Schuller, A., Dietz, B., Flath, C. M., & Weinhardt, C. (2014). Charging strategies for battery electric vehicles: economic benchmark and V2G potential. IEEE Transactions on Power Systems, 29(5).

Tesla. (2016). Tesla.com. Retrieved 17 September 2016, from

Wu, D., Zeng, H., & Boulet, B. (2015). Impact Analysis of EV Charging with Mixed Control Strategy. Editorial Board Members, 731.

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