Tesla is one of the high-tech companies that hopes to revolutionize the way the planet addresses the problem of climate change and sustainability. To achieve its mission, the company has had to continually innovate. The current business environment has been analyzed using PESTEL (political, economic, social, technological, environmental, and legal factors) and SWOT (strengths, weaknesses, opportunities, and threats) analysis. These two analyses reveal that Tesla faces multiple favorable factors such as political, economic, and technological, and a few aspects such as delivery that will need to be addressed to improve its situation. The SWOT analysis and critical question analysis have been used to formulate a new distribution strategy by highlighting both the problems with the current one and explaining why the selected approach works better. A shift from direct to intensive distribution is a strategic change that helps Tesla improve delivery efficiency.
The strategy proposed is considered to be a strategic change and some of the change management principles and frameworks have been highlighted. The proposed implementation framework comprises five stages: defining gains from change, building a coalition, assessing readiness, sustaining change performance, and engaging key stakeholders. The role of leadership in organizational performance has been outlined where transformational style has been the one most associated with high employee and corporate performance. The recommendations given have outlined how Tesla can implement the strategy and retain a few ore marketing functions.
Tesla is a manufacturer of electric cars and other high-tech components. The primary goal of Tesla is to help the planet tackle climate change and sustainability issues. The company is the first in the world to produce fully electric cars on large scale. The traditional automotive companies have struggled to replicate the same level of success with electric cars as Tesla has had which makes the company already a market leader in the industry. The mission and vision statement of the firm explains that electric cars are not just a lucrative business opportunity being exploited, but are a deliberate effort to help the world reduce the reliance on environmentally dangerous fossil fuels. The vision of the company is to “create the most compelling car company of the 21st century by driving the world’s transition to electric vehicles” (Sule, n.d., p. 1). The mission statement is to “accelerate the advent of sustainable transport by bringing compelling mass-market electric cars to market as soon as possible” (Sule, n.d., p. 1). From these statements, it can be inferred that the primary objective of Tesla is to offer the planet an alternative and sustainable transport.
Tesla was founded in 2003 with the core business being the design, development, manufacture, and marketing of high-performance electric cars. Additionally, the firm produces energy storage and solar energy generation products. Today, Tesla is renowned for its current car models such as the Model X SUV and Model 3 Sedans in addition to other ambitious projects such as Space X. Autopilot technology is also available after a successful launch in 2016. From an operational perspective, Tesla runs two major segments: automotive and energy generation and storage. The larger of the two is the automotive industry comprising approximately 85% of the total sales (About Tesla, Inc., 2021). Other products and services offered in his industry account for 10% of the sales while energy generation and storage fill the other 5% (About Tesla, Inc., 2021). As an American-based company, Tesla also serves other North American countries, as well as some Asian, for example, China, and European markets such as the Netherlands. The USA accounts for over half the company’s total sales.
The financial performance of Tesla over the years has been controversial because of the cycles of profits and losses. As a new company selling novel concepts, it can be argued that the financial performance hints at good prospects. Between 2015 and 2019, Tesla’s sales grew by 507% but this growth did not reflect in profitability as the company made net losses due to heavy investments in research and development (About Tesla, Inc., 2021). In 2019, the revenues rose by 15% to reach $24.6 as a result of an 87% automotive sales increase (About Tesla, Inc., 2021). However, the company still lost $862 million which can be considered an improvement on the $976 lost in 2019 (About Tesla, Inc., 2021). The strategy deployed by Tesla to help improve the financial situation is opening facilities in foreign countries such as China to help sell to Asian markets more efficiently. Plans to open more gigafactories in Germany are also underway which will help in selling in the European markets.
Tesla has been regarded as the most innovative corporation on the planet. The progression in revenues and market share has resulted in a rise in the number of employees in the service centers and gigafactories across the world. The latest figures from Statista indicate that by December 2019 Tesla had employed over 48,000 workers (Wagner, 2020). Its leadership by a charismatic and enthusiastic CEO Elon Musk makes Tesla a controversial yet one of the most promising green companies. An examination of the current business situation might reveal a few challenges but this is expected of a company of its novelty, age, and size.
Current Business Scenario
The current business scenario for Tesla is shaped by multiple novel challenges on one hand and great competitive advantages and prospects on the other. Tesla’s green technology can be labeled as a new concept in the automotive industry. Through innovations and advances in technology, Tesla has found a niche that traditional automotive companies have been unable to exploit. To fully understand the current business scenario for tesla, two models are used: Porter’s five forces and the VRIO model.
The VRIO framework is part of the resource-based view (RBV) which is a perspective that assesses the link between a firm’s internal characteristics and performance. A company’s resources are used to examine its sustainable competitive advantage in the market. RBV is a reference for conducting an internal analysis of a business to determine both resources and capabilities. These resources are categorized into physical, human, financial, and organizational resources. The VRIO model in RBV describes the nature of these resources that give them a competitive advantage. The four elements in VRIO are value, rarity imitability, and organization.
The value of resources allows a firm to make its production processes more effective and efficient. Additionally, these capabilities make it possible for the business to exploit external opportunities and address threats. Tesla’s valuable resources include the new battery technologies that not many other companies have. It is these technologies that help Tesla build electric cars while other automotive manufacturers cannot. Additionally, Tesla possesses other core competencies of value to its business. These include a reputable brand image, headquarters in Silicon Valley, high efficiency, Elon Musk who is the CEO and innovator driving the success of Tesla, market position, and innovation culture.
The rarity of resources or capabilities is when they are controlled by only a few enterprises. Tesla’s battery technology, for example, is a rare resource that the automotive industry is yet to acquire and develop. Even though other companies are developing electric cars, most of them are still in the design, testing, and prototype stages. It is argued that if the battery technology was readily available then the market for electric vehicles would be flooded with products similar to Tesla. A few other resources and competencies are rare as it is demonstrated in Table 1.
Imitability entails whether the resources or capabilities are hard to replicate by other companies. The business model and many aspects of Tesla such as R&D can be replicated. However, the ability to produce the battery technology remains hard to replicate. This is partly because companies would need to invest heavily in research and development as Tesla did and partly because Tesla has patented many of the inventions involved in battery development. Competitors are forced, therefore, to pursue their own development paths which are costly. Many of them are traditional automotive manufacturers making profits from gas-fueled cars. They cannot invest heavily in electric cars without jeopardizing their profitability.
Lastly, the organization is the aspect that involves whether the resources or capabilities are appropriately managed and supported by the company. Tesla is keen to support and protect its core competencies and resources which include exclusive agreements with suppliers of critical materials such as cobalt. Partnering with key stakeholders and providers of capabilities gives Tesla control over the supply chain. Additionally, Tesla manages the distribution channels through the direct delivery strategy. This move allows it to design and create favorable customer experiences. The VRIO analysis is summarized in the table below:
Table 1: A summary of VRIO analysis.
Porter’s Five Forces
The five competitive forces are a framework that was developed by a Harvard Business School Professor, Michael Porter. First published in 1979, the model outlines the five key competitive opportunities and threats in the external environment. These forces are rivalry among current competitors, the threat of new firms entering the market, availability of substitute products and services, bargaining power of buyers, and the bargaining power of suppliers. Using this model on Tesla depends on whether and how the company is perceived as part of the broader automotive industry or the electric car market. Considering that other automobile makers are also developing electric cars, this analysis will be based on the notion that Tesla is part of the larger industry.
Competitive rivalry in the electric car market can be considered medium. This is because there are only about three major manufacturers of these products in the world namely Volkswagen, BYD, and an alliance between Nissan, Mitsubishi, and Renault (Today’s biggest electric vehicle manufacturers in the world, 2020). The few businesses are, however, very aggressive with innovations being used as a competitive weapon. Switching costs are deemed to be lower which would encourage traditional automobile makers to change to electric cars. However, the costs of investing in R&D for a new battery and other technologies could be the only barrier preventing these companies from joining the competition with Tesla.
The bargaining power of Tesla’s clients can also be considered to be medium because customers have a significant influence on the company’s operations and products. However, they do not have other products with which to compare prices and quality to force Tesla to lower prices. Additionally, the availability of other electric cars and substitute products to those offered by Tesla means Tesla has to meet certain demands to appeal to and maintain customers’ loyalty. The cost of switching to other products is low which removes barriers for the customers to purchase alternatives, which is the only major force in this aspect.
The bargaining power of suppliers is moderate because many are medium-sized enterprises without the financial power to force decisions at Tesla. The raw materials are often sources from medium-size companies with no significant financial power and customer base to allow them excessive control of the supply chain. The exclusive agreements with many of these suppliers also allow more control for Tesla and less power for the suppliers. The competition for these raw materials is also moderate meaning only a few other companies require these products.
The threat of substitutes is high when Tesla is perceived as part of the larger automotive industry. This is because the market for vehicles is still dominated by fuel-powered cars and multinationals such as Ford, GMC, Toyota, and Volkswagen among others. For electric cars, however, the threat of substitutes is low because only a few other manufacturers have the success rate of Tesla. Indeed, Tesla can be regarded as the market leader for electric cars.
Lastly, the threat of new entrants is insignificant because few companies have the financial power to establish manufacturing operations on large scale. The high costs of brand development, research and development, and the economies of scale. The major threats faced by Tesla are from the traditional manufacturers who have the resources to switch to or establish operations for electric cars. With patented technologies, new entrants would need to invent their own technologies or purchase them from Tesla which will come at a huge cost.
Environmental Analysis and Need for Change
Every business operates in an environment comprising of multiple factors, both internal and external. By definition, a business environment entails the sum of the internal and external factors that affect a business (Hans, 2018). The success of the business depends on how well it manages these factors. Tesla faces new challenges and opportunities due to the uniqueness of its products and business model. PESTEL analysis is an effective framework for examining the external environment. SWOT analysis focuses on elements both internal and external to the firm. These two models will be used to examine how Tesla manages its environment and inform the areas where change will be needed.
PESTEL analysis is an acronym for political, economic, social, technological, environmental, and legal factors that comprise the external business environment. The political factors entail the activities of the government and the political situation of the country or countries in which a company operates (Hans, 2018). Tesla is based in the United States, the country with one of the most stable political regimes. The government and politicians support the company’s efforts in pursuing sustainable transportation. Other major markets and operational bases in China and the Netherlands all have a favorable political attitude towards a greener future.
Economic factors comprise macroeconomic aspects that affect the entire economy, including unemployment rates, currency exchange rates, and recessions and depressions. At the microeconomic level, factors affecting the business itself include demand, market size, and distribution chain. Currently, the entire economies of the world are experiencing a downturn because of the coronavirus pandemic. Tesla faces positive demand growth and mild competition for its products. However, its distribution channels are inadequate to meet the delivery standards and efficiency sought by the consumers.
Social or sociological factors entail the general social relations that affect a company’s operations. Social and environmental movements and other activities that pressure a company are among the key sociological factors (Hans, 2018). Tesla’s sociological issues include employment concerns where some facilities run by the company and/or its partners pay workers low wages. The growth of the company has attracted criticism because the company is considered one of the lowest paying employers.
Technological factors include innovations and inventions that either benefit or harm a company. Some technological innovations offer greater productivity while others threaten the existence of certain products. Tesla’s technologies offer an entirely new product and a niche market to be exploited. Additionally, the innovations give the company a competitive edge in the industry and, although disruptive, allow the company to exploit lucrative opportunities. The company leads in these advances meaning it can manage to make updates to current technologies without fearing obsolescence.
Environmental factors are those concerned with how the activities of business affect the environment. As a manufacturing company, Tesla would have major environmental concerns. However, it is the company’s suppliers who bear the bigger burden of being environmentally friendly. Mining activities and the extraction of other raw materials could have serious environmental detriments. However, Tesla compensates for these setbacks with the production of electric cars with zero emissions.
Lastly, legal factors are those legislations and laws influencing various aspects of business operations. Anti-trust laws in the United States and other European countries, as well as employment, anti-discrimination, minimum wage, and health and safety laws, can have some cost implications for manufacturers. For example, health and safety laws require entities to implement certain frameworks and to provide employees with gear and equipment that assures them of their safety. Tesla is subject to all these legal requirements and compliance has made Tesla one of the safest car factories.
A SWOT analysis examines internal factors in strengths and weaknesses and external factors in strengths and weaknesses. The internal factors have been defined by Hans (2018) as those that impact the success and approach to operations. The strengths can be described as the internal strategic factors which empower a company to compete in the market. Tesla enjoys strategic strengths such as a strong brand name, highly innovative processes, innovative culture, and a strong control of the production processes. A strong brand name appeals to new customers and maintains the current ones. Tesla has managed to build a reputation for reliable products where the only challenge to the brand is making timely deliveries.
The weaknesses are also internal strategic factors, but these are concerned with limiting the performance of the company. Additionally, weaknesses reduce the competitiveness of a firm, and they represent problems that must be overcome. Tesla’s major weaknesses are in the limited market presence considering the company is relatively new. With limited resources as compared to major global automobile makers, Tesla’s market share is considered very small. Additionally, Tesla’s products are expensive which makes it harder to sell to a certain clientele. The prices reflect the lower level of efficiency in the production process which may require to be streamlined. Most importantly, Tesla’s distribution channel can be considered an internal factor because the firm uses a direct marketing strategy. Timely deliveries are a challenge and customer complaints are increasing. Lastly, a limited supply chain makes it harder for Tesla to acquire key materials and resources.
Opportunities are external factors that present growth and development potential. Tesla can capture the global markets because the electric car concept is universally appealing and perceived to be the future of green transport. The company’s current size allows it to serve only a few markets in the Americas, Europe, and Asia. Further advancements will see Tesla dominate these regions, including other markets such as Africa and Australia. Other opportunities include business diversification considering Tesla operates in more than one segment. The battery technology makes it possible to exploit opportunities in solar energy generation and storage. Lastly, there is great room for Tesla to exploit the global supply chain.
Threats are those external factors that prevent a business from maximizing the gains from its strengths and opportunities. In the case of Tesla, aggressive competition from major automotive makers, including in the market for electric cars, is a major threat to Tesla’s market share. Fluctuating material prices make it impossible to stabilize costs and product prices. The higher selling costs are evidence of supply problems. Lastly, the direct selling strategy is a major challenge because it increases the company’s expenses. Tesla does not use dealerships that have better selling infrastructure meaning the firm has to build an entire distribution channel. These costs could be reinvested in more critical areas, including costly research and development.
The market analysis presented above shows that the key area where a change is needed is in the distribution of products. The direct selling strategy may be key to building consumer experiences. However, the costs involved, coupled with the limited resources, prevent the company from effectively delivering products to customers. Therefore, the experiences for many customers include frustrations with delayed delivery or delivery made at wrong destinations. The complaints are mounting, and this could devastate the company’s expansionary efforts.
Strategy Identification and Implementation
Strategy to Overcome Challenges
The environmental analysis presented above indicates that Tesla is doing well in many areas apart from distribution. The task of distributing goods has a tremendous value for both the industry and the economy. Most importantly, the company itself can use it as a tool for competitive advantage. The direct marketing strategy adopted by Tesla is slowing the company down, and it needs to be replaced with a better one. Two tools of strategy formulation can be applied to develop the right approach for Tesla: critical question analysis and SWOT analysis.
SWOT analysis of Tesla has already been provided from where the weaknesses highlighted include delivery problems. In strategy formulation, SWOT analysis is based on the assumption that managers can see the right strategy by carefully examining the strengths, weaknesses, threats, and opportunities. Critically examining the weaknesses presents the evidence necessary for Tesla’s leadership to change the distribution strategy. Of all the techniques available, direct and exclusive distribution limits the company’s ability to sell many units and to deliver on time. Direct distribution requires a firm to have the necessary infrastructure and outlets while exclusive distribution utilizes only a few outlets. Assuming Tesla seeks to conquer the global market, these two approaches rule themselves out and leave intensive distribution as the most appropriate one.
By definition, intensive distribution entails the utilization of all possible distribution outlets which can give the product a greater outreach. The automotive industry comprises manufacturers and dealers and/or distributors who have created an intensive global distribution infrastructure. Through partnerships and agreements, these automobile makers can manage to sell to almost all countries and all major cities and towns across the world. This strategy works when buyers are unwilling to search for certain products in which case making them accessible may trigger purchases. Currently, Tesla is experiencing increasing demand which goes beyond the figures that it can supply. The SWOT analysis can again be used to examine this strategy and its efficacy. Firstly, it allows for the exploitation of available resources meaning Tesla does not have to make any investments in the distribution network. The greater outreach and the efficiency of the available channels will solve the company’s delivery problems.
The only weakness of direct distribution is that Tesla loses control of the distribution and contact with the final consumer. Its efforts to create the right customer experience for electric cars will be frustrated which cannot be a huge loss considering almost all customers are currently happy with the products themselves. In terms of opportunities, external resources can become available to Tesla, for example, dealers with well-established distribution channels and facilities make them available to Tesla. The threats, however, can include competition for space with other cars from traditional manufacturers. Visibility in a distribution channel is critical and Tesla could risk its products being masked by fuel-powered cars. However, marketing activities can help reach out to consumers and direct them to the right dealerships across the world where cars can be found.
The critical question analysis comprises four critical questions that the management should answer when developing a strategy. The first one is what the purpose and objectives of the company are. To answer this question for Tesla, the mission statement can be referred to, which hints at producing and selling as many electric cars as possible. This objective can only be accomplished if there is adequate demand. Tesla’s cars record adequate demand, and therefore the strategy selected should be one that gets the products to the consumers. Direct marketing falls short of this expectation and hinders Tesla from achieving its purpose and objective.
The second critical question is where the firm is currently going. This can be answered by looking at the recent developments for Tesla both in the United States and across the world. Firstly, the company is going global with gigafactories in China, the Netherlands, and Germany. This presents Tesla with facilities for mass production across the major markets. Therefore, a better distribution strategy will be needed to clear this massive inventory with greater efficiency. The third question entails the kind of environment in which the company exists. Tesla is operating in a highly and aggressively competitive market where any corporate mistakes could be used by rivals against it. It should be emphasized that consumers like the idea and products of electric cars meaning any company can easily sell them. As such, a business offering better delivery experiences could easily take some of Tesla’s market share.
The last critical question is what can be done to achieve better objectives in the future. This is answered by going back to the distribution strategies available and selecting the one that most suits the company’s goals. Intensive distribution again emerges as the approach of choice because of the competitive advantage that can be derived from it. It is the strategy that allows Tesla to sell as many cars in as many markets as possible.
Implementation of Strategy
The implementation of the intensive distribution approach will be a strategic change in how Tesla does business. Change is omnipresent in businesses meaning firms have to make positive transformations to benefit themselves and society. Cultural change is one of the key principles that will help Tesla manage the transition. Currently, the most visible culture is that of innovation meaning Tesla is willing and ready to launch new products and update the existing ones. Such a culture could be associated with flexibility and, therefore, the culture of change acceptance. Changing the current culture of direct selling will benefit the company by eliminating non-core business functions and re-focusing on vital processes. On the other hand, however, the firm may lose touch with the customer who has been the key stakeholder driving progress through direct feedback to the company.
Other change management principles will have positive influences on the ability of Tesla to undertake the transition. The principles offer a guide on how to successfully manage the change. For example, identifying the gains from the change, building coalitions for change, and examining readiness for change offer not only tactics for managing change but also steps to be followed in implementing the transformation. A framework of change management principles comprising a 5-step process can be used. It focuses on how to approach any transition in a business, and the strategy recommended for Tesla qualifies to be defined as a strategic change.
The first step entails identifying the benefit of the change. The SWOT analysis presented above explains why the new distribution strategy is needed. Tesla needs to take advantage of the existing distribution channels to eliminate the burden of building new infrastructure and to increase the visibility of its products. Additionally, the company will ease the delivery nightmare and the complaints that it has caused. The second step is building a coalition for change to get people to embrace the initiative. At Tesla, however, the only stakeholder who needs conviction is the company’s CEO Elon Musk who is responsible for all actions Tesla takes. He will be the one to make the decision, but he will still need input from other key stakeholders including potential distributors and key managers within Tesla.
The third step involves examining the readiness of the firm to accept and embrace the change. Considering the strategic implications involved, this is a critical step because Tesla needs to examine whether it has successfully created the right customer experience to confidently hand over these functions to third parties. Tesla has to decide whether the product alone is adequate to maintain customer loyalty. However, the company can still retain a few service centers to handle all customer issues and to allow distributors to handle all other distribution functions. The fourth step involves making the change relevant to all individuals affected. Eliminating direct distribution may render some employees jobless or redundant. Tesla may have to restructure certain aspects of the business processes to accommodate the strategic change. All individuals affected by any modification will need to be alerted and convinced to embrace the change. The last step entails sustaining the performance of the strategic change. Monitoring and making necessary alterations to the processes may be essential for successful implementation.
Innovation is already a culture at Tesla meaning the company does not need much improvement. In the context of the change, however, improvements may be needed to get the company ready for the transformation. Market research regarding the benefits of intensive distribution will provide the information necessary to quantify the benefits Tesla derives from the strategy. Attitudes towards greater control of business processes may also need to be reversed to improve readiness for change. Throughout the supply chain, Tesla has used strategies that allow the company to control all processes and even the suppliers and partners. The same approach towards distribution is considered a barrier to the achievement of the company’s mission.
Leadership Values to Manage Strategic Change
Leadership Styles and Organizational Performance
Leadership is a critical element in the success or failure of a business. There is adequate literature that links leadership styles and organizational performance. Companies tend to emulate their leaders and follow them to accomplish corporate goals. Some leadership styles, however, may have a negative effect because followers are not enthusiastic about what the leader wants. The case of Tesla can prove this point, for example, because Elon Musk is an innovator and inventor, and these values are what makes Tesla the company it is today. A study by Bhargavi and Yaseen (2016) reveals that companies achieve what has been set by the leadership. For example, a transactional leader will improve employee performance by linking their jobs with the short-term objectives and the value and reward system. Such a company may not focus on the future or exceed the targets as the leadership only focuses on the immediate needs of the firm.
In the manufacturing industry, leadership has also been found to influence the output of the employees. According to Ebrahimi, Moosavi, and Chirani (2016), leadership that pursues exploitative innovation will undertake initiatives such as building employee skills. It is argued here that a company such as Tesla cannot achieve continuous innovation without constantly updating the knowledge and skills of its core workers. Leadership entails influencing employees to follow and embrace the vision of the leader. Lack of vision can mean poor performance whereas high levels of motivation and charisma could see employees commit to a company and its goals. In essence, it is the relationship between the leader and the worker that determines how much effort employees will put toward corporate goals.
Organizational performance is a function of the output of all individual staff. It can be argued that employees will often seek to attain the goals set for them unless they are motivated to seek more than the expectation. Such behaviors can be associated with a key concept in a business performance called organizational commitment. By definition, commitment is the factor that links the employees to the entity and which helps the organization succeed. Yahaya and Ebrahim (2016) have conducted a study that finds that certain leadership styles have a direct relationship with the level of employee commitment. Transactional, transformative, and Laissez-Faire styles have been examined, and transactional leadership style was found to be negatively associated with commitment. Transformational and Laissez-Faire styles, on the other hand, have been found to comprise key aspects such as engagement of employees, which in turn raises their levels of commitment.
Transformational leadership is one of the styles that have been studied extensively and one that has been conclusively linked with employee performance. This is because transformational leadership focuses on improving followers and taking care of their needs. The manager’s main responsibility is to develop worker skills, build their morale, and motivate them (Khajeh, 2018). In other words, these leaders produce synergies between human resources, innovation, and learning which in turn increase the level of individual and corporate performance (Para-González, Jiménez-Jiménez, and Martínez-Lorente, 2018). However, it is important to emphasize that transformational leadership improved performance innovation and learning are part of the human resource management system in the company. Companies that have had transformational leaders have always performed exceptionally. Tesla, for example, has a transformational leader in Elon Musk who makes heavy investments in research and development. This department drives the innovations at the company, and the success in the launch of multiple novel products and concepts is testimony to the fact that transformational leadership works best in such circumstances.
It is important to appreciate that leaders and their expectations define employee expectations. In transactional leadership, for example, the managers are focused on exchanging targets and rewards with employees. Objectives are set for the workers, and certain rewards accompany their accomplishment. The expectations are low for the manager, and the same reflects on the employees. In contrast, other styles such as democratic leadership set higher expectations for staff because the leader engages them and values their opinions and ideas (Khajeh, 2018). In such a case, an employee will be motivated to give their best as every contribution is acknowledged and appreciated. The responsibilities of the workers are also higher because they are involved in decision making. Given a chance to prove their value to a leader will make them want to achieve even greater results.
The transformational leadership and the current values at Tesla are the key to the company’s progress, and this is an aspect I would retain. However, there are some areas such as corporate social responsibility that may need to change. Tesla sources materials such as cobalt from countries such as the Congo where conflicts and malpractices such as child labor are rampant. A socially responsible company may need to distance themselves from such a reputation. The transformational traits of the CEO at Tesla would be needed in changing the face of the supply chain.
The major recommended change in Tesla is the shift from direct to intensive distribution. The rationale is that Tesla has not built an adequate distribution infrastructure to allow it to handle all the sales and dissemination. The delivery problems which have been experienced point to the fact that growth in demand and production capacity may require heavy investments in marketing facilities which may be beyond the ambitions of Elon Musk. Control has been a key value that the company upholds and which explains the direct distribution. In other words, the company wants to have control of the consumer experience. It is argued here that such levels of control are possible with relatively small businesses. Growth in business means increased complexity, and using the services of third parties becomes a cost saver.
While intensive distribution is because of its advantages, it is recommended that Tesla build strategic partnerships with distributors and dealerships. According to Vanagas, Ābeltiņa, and Zvirgzdiņa (2018), partnerships require new forms of relationships where firms work together to achieve common goals and aspirations. Dealers tend to offer multiple services packed for the consumer experience. With strategic partnerships, Tesla can delegate some customer relationship duties to trusted third parties. The emphasis on partnerships is that Tesla’s desire for control of the distribution channel is to help the company ensure its customers get the best experience. Intensive distribution may be equivalent to giving up on this critical aspect which can be compensated by having distributors who can perform the tasks.
Lastly, it is recommended that Tesla should retain its core values of improving customer experience through innovation and quality. This might mean that Tesla will preserve some of the infrastructures which allow it to get direct feedback from consumers to aid in research and development. The service centers are a key resource because they offer Tesla firsthand experience of customer complaints and inputs. While it may become increasingly hard to maintain adequate facilities, a few strategically located ones in key markets can serve the purpose. It is through these centers that the company can learn about its product characteristics upon usage by customers. Defects and other aspects which may require improvements can be informed from the reports generated from the mechanics.
Tesla is seen as one of the most innovative companies in the world with a goal to provide the planet with greener transport for sustainability. The strategic management issue discussed in this report entails a change in distribution due to the current challenges. Today, Tesla has adopted a direct distribution strategy that allows it to directly link with the customer and to be in control of creating customer experiences. However, the same strategy is the reason why many customers complain that their products have been delayed or delivered to the wrong addresses. At this stage of the company’s growth, increasing demand may strain the company’s production and operational capacity, a situation which may require many of the non-core business processes to be outsourced. It is argued that there are alternative ways to create productive consumer experiences.
The solution proposed for Tesla is the intensive distribution strategy which is an approach that involves the use of dealers and distributors. These third parties have the relevant infrastructure and facilities to make timely deliveries and to increase the visibility of Tesla’s products. In the recommendations section, strategic partnerships have been highlighted as a means to secure the best services and resources from distributors. The partnerships align the interests of the parties involved meaning Tesla can delegate some of the core functions.
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