Principles of Management
678 PART 6 Controlling
16.8 Career Corner: Managing Your Career Readiness
• Developing the competency of career management requires the application of four additional career readiness competencies: ownership/accepting responsibility, self-motivation, self-awareness, and openness to change.
• Figure 16.9 displays a four-step process for managing career readiness.
• Five generic tips help you manage your career: (1) Make every day count. (2) Stay informed and network. (3) Promote yourself. (4) Roll with change and disruption. (5) Small things matter during interviews.
1. What is control, and what are six reasons control is needed?
2. Explain the steps in the control process, and describe the three levels of control.
3. Distinguish among the six areas of organizational control: physical, human, informational, financial, structural, and cultural.
4. Explain the four indicators of the balanced scorecard, and state what a strategy map is.
5. What are four mechanisms of success for measure- ment-managed firms and four barriers to effective measurement?
6. Define incremental budgeting, and give some exam- ples of types of budgets.
7. Explain the following financial tools used for control: financial statement, balance sheet, income statement, and audits (both external and internal).
8. Discuss total quality management, its two core prin- ciples, and the concept of continuous improvement.
9. Explain the following TQM tools and techniques: re- duced cycle time, the ISO 9000 series, the ISO 14000 series, statistical process control, and Six Sigma and Lean Six Sigma.
10. What is the formula for defining productivity?
Understanding the Chapter: What Do I Know?
Is Tesla Out of Control? Tesla started in 2003 and specializes in electric cars, bat- tery energy storage, and solar panels. The company had more than 37,000 employees and revenues of over $11 billion in 2017.172 Tesla revolutionized the electric car in- dustry when it introduced the fully electric, plug-in Model S sports sedan in 2013. The Model S was named “Car of the Century” by Car and Driver magazine in 2015.173
Tesla’s Model S started at well over $70,000, with some models costing more than $100,000.174 Tesla added a more affordable Model 3 at around $35,000 to its lineup in 2017.175
Tesla’s finances struggled since introducing the Model 3. The company’s net losses grew from $773 million in 2016 to $2.24 billion in 2017.176 Moody’s downgraded the company’s credit rating based on fears that it could run out of money by the end of 2018.177 What happened?
TESLA’S MANUFACTURING PROBLEMS Manufacturing of the Model 3 has been “hell,” accord- ing to Musk.178 The vehicle is taking too long to make, and it has a high defect rate.
Tesla’s production line couldn’t keep up with the demand for approximately 400,000 Model 3s between 2017 and 2018. The company has been operating out of
a former GM/Toyota joint venture plant in California with a capacity to produce 400,000 cars annually. Tesla could barely get a quarter of that production in 2017 as it resorted to pulling cars off the production line and finishing them by hand.179
Tesla’s production line is suffering from too much automation, according to Business Insider. Most car manufacturers automate stamping, painting, and weld- ing, but Musk decided to automate even more.180 He directed that final vehicle assembly, including putting parts inside the vehicle, be completed by robots. “It’s remarkable how much can be done by just beating up robots ... adding additional robots at choke points and just making lines go really, really fast,” he said in 2017.181 To his surprise, automation actually slowed production. “Automation in final assembly doesn’t work,” said a Wall Street analyst. For example, Japanese carmakers actually limit automation because it is costly and negatively impacts quality.182 Tesla experienced this firsthand. Musk’s robots couldn’t get the final assembly sequencing right, delaying assembly and prompting manual refinishes.183
The robots also haven’t saved the company any money. Tesla was able to reduce the number of workers on its production line due to automation, but it had to hire more expensive engineers to manage and program
Management in Action
Control Systems and Quality Management CHAPTER 16 679
its robots. This does not even take into account the expense associated with redoing assembly that robots couldn’t get right in the first place.184
Model 3s coming off the production line were defec- tive. According to the LA Times, “Online Tesla forums are rife with comments from some of those lucky enough to have the car in hand. They’re griping about dead batteries, leaking tail lamps, protruding head- lights, door rattles, and body panels that don’t line up— and in many cases, they’ve got photos to back it up.”185
The delays and poor production quality are creating a cash problem for Tesla. It can’t sell cars it hasn’t pro- duced, yet Bloomberg reported that the company spent nearly half a million dollars every hour of 2017. “Whether [Tesla] can last another 10 months or a year, [Musk] needs money, and quickly,” said Kevin Tynan, a senior analyst with Bloomberg Intelligence. Tynan esti- mated Tesla will be required to raise at least $2 billion in fresh capital by mid-2018.186 Musk disagreed, tweeting “Tesla will be profitable & cash flow positive in Q3 & Q4 [2018], so obviously no need to raise money.”187
Musk’s ambition has been praised in the past, but Tesla’s worsening financial position is raising more and more questions. The company has lost $4.6 billion since going public in 2010.
MUSK IS TRYING TO TAKE CONTROL Tesla’s plan is to take greater control of its manufactur- ing line in order to increase production and reduce ex- penses. Musk admitted in 2018 that Tesla overly relied on robots in production telling CBS, “…excessive auto- mation at Tesla was a mistake. To be precise, my mis- take. Humans are underrated.”188 Musk believes more humans need to oversee vehicle assembly, starting with him. The CEO is spending day and night at the Tesla factory (even sleeping in the conference room) so he can realize errors in production and solve them in real time.189 Tesla employees may not be too thrilled. Musk describes himself not only as micromanager, but as a “nano-manager” (micro- means a thousandth of some- thing, while nano- means a billionth). “I have [obses- sive-compulsive disorder] OCD on product-related issues,” he told The Wall Street Journal. “I always see what’s ... wrong … I never see what’s right.”190
Musk says that direct oversight has allowed him to “unlock some of the critical things that were holding [Tesla] back.”191 His first move was to temporarily shut down the entire Model 3 production line in April 2018. Tesla’s spokesperson termed the shutdown as “planned downtime” to “improve automation and systemically address bottlenecks in order to increase production rates.”192 Critics believed Musk was wrong to put the line on hold. “Periodic shutdowns of hours or a day are not uncommon during pre-launch pilot build. They are unheard of in regular production, where [Musk] suppos- edly is,” said a former General Motors vice chairman.193
What Musk did not put on hold were his expecta- tions for production. Tesla committed to increasing production from 5,000 to 6,000 cars a week by June 2018, according to USA Today.194 The investor commu- nity is skeptical of this lofty goal, especially since Musk has a history of failing to deliver. For example, he said in 2017 that Tesla would churn out 5,000 Model 3s by year’s end but only delivered 2,700.195
Musk plans to get to 6,000 cars a week by producing them day and night. Tesla is adding another production shift at its manufacturing plant, transitioning to 24/7 operations. The company is hiring 400 workers a week for several weeks in order to cover this new shift.196
Some analysts don’t think this is a wise move as most U.S. auto plants at established automakers only oper- ate two eight-hour shifts. This is because supplying a plant with parts and keeping the equipment in peak operation is difficult when running around the clock. “There’s diminishing returns when running 24/7,” said an executive analyst with CNNMoney. Running an addi- tional shift also has financial implications for Tesla.
The additional hires will surely put more pressure on its finances.197
Musk’s response is to tighten the purse strings else- where. He is planning an audit to save expenses where possible, says The Detroit News. “I have asked the Tesla finance team to comb through every expense world- wide, no matter how small, and cut everything that doesn’t have a strong value justification,” he wrote in a 2018 e-mail to Tesla employees. “All capital or other expenditures above a million dollars, or where a set of related expenses may accumulate to a million dollars over the next 12 months, should be considered on hold until explicitly approved by me,” said the CEO.198
Can Musk get Tesla under control before it runs out of cash?
FOR DISCUSSION Problem-Solving Perspective
1. What is the underlying problem in this case from the perspective of CEO Elon Musk?
2. What are the causes of the problem?
3. What is your evaluation of Musk’s approach for solv- ing the problem?
Application of Chapter Content
1. Is Musk implementing feedforward, concurrent, or feedback control to solve production issues? Explain.
2. Which areas of organizational control are part of Tesla’s plan to remedy issues with the Model 3? Pro- vide examples.
3. Create a balanced scorecard to give Musk a view of Tesla. Utilize all four perspectives.
680 PART 6 Controlling
4. What type of an audit is Musk utilizing? Explain.
5. Is Musk exhibiting the two core principles of total quality management? Why or why not?
6. Which barriers to control success are exhibited by Tesla? Provide examples.
Should Companies Use GPS to Track Employees? More companies are using GPS apps to track the where- abouts of their employees for productivity and safety- related reasons. A 2017 study showed that nearly a third of employees were tracked via GPS by their employers.199
Employee tracking is growing in both the commercial and government sectors. For example, the city of Park Hills, Missouri, installed GPS devices in 2018 on city- owned vehicles, including some police cruisers. The city administrator believed the tracking devices would lead to “better-spent drive time, improvement of the safety of city employees, improvement of job performance, [and] improvement of services provided to the community. . . . ” The system is not very expensive. The GPS devices were provided for free with the city signing a two-year contract and paying a $200 monthly subscription fee.200
GPS tracking can apply after an employee’s shift is over. If a worker takes an employer-owned vehicle home at night or over the weekend, it might continue sending its location. Tracking devices on mobile phones may also continue broadcasting an employee’s location during time off.201 One in 10 employees responded to a QuickBooks survey saying that they were, in fact, being tracked 24 hours a day, confirming concerns of around-the-clock tracking.202
Employees out in the field may not be the only ones being tracked in the future. Amazon was granted pat- ents for the design of warehouse tracking wristbands in 2018. The company currently has its warehouse “pick- ers” stand in front of shelves and move items into bins, tracking each product with a handheld barcode scan- ner. Amazon says the wristbands will speed up the ful- fillment process by freeing up employees’ hands from scanners and their eyes from computer screens. This isn’t the only information the company can track though. Any wearable can collect personal information about an employee, even unintentionally. “They could
gather detailed information about a worker’s every move—when they go to the restroom, if they slow down at certain times of day, how often they stop and rest,” according to CNNMoney.203
The legal landscape around tracking employees is “very vague,” said Lew Maltby, the president of the National Workrights Institute. Federal privacy laws do not explicitly bar businesses from using GPS to track their employees. So an employee’s chances of success in court will depend on different factors, including whether or not consent was given to be tracked and whether the device being tracked belongs to them or the company. “It’s essen- tially whatever shocks the judge,” said Maltby.204
SOLVING THE CHALLENGE What would you do if you were the CEO of a company and your managers proposed an employee GPS track- ing system?
1. The company needs to use all means to ensure employee productivity and safety. Employees need to provide con- sent, as a condition of employment, to being tracked when using company vehicles and/or electronic devices at any time of the day. If you are in possession of com- pany property, the company needs to know what you are up to. Let’s implement the tracking system.
2. The company should not be tracking employees, on or off the clock, as this is an invasion of privacy. The last thing we need to do is play Big Brother and de- moralize our workforce. Let’s find other ways to en- sure productivity and safety.
3. Employee productivity and safety is important, but needs to be balanced with privacy concerns. Employ- ees should consent to being tracked while on the clock, but once they’ve clocked out the tracking sys- tem should be disabled. Let’s implement a limited tracking system.
4. Invent other options.
Legal/Ethical Challenge
Learn about Uber’s use of control mechanisms on its drivers to encourage service quality. Assess your ability to apply the management concepts discussed in this chap- ter to the case by going to Connect.
Uber Continuing Case