Business Capstone paper on Under Armour.

Reason for the Paper:

This paper will be a strategic audit of Tesla to fulfill the requirements for a CAPSTONE paper, utilizing the concepts of five different courses in my undergraduate program at the University of Redlands. The five courses are as follows:

· Business Information Systems

· Financial Management

· Managing and Leading Organizations

· Principles of Marketing

· Strategic Management

Each section will be labeled, with numerous key concepts highlighted to demonstrate my ability to apply what I learned to a real world organization; Tesla. I will also be employ a SWOT analysis through the lens of each course to identify strengths, weaknesses, opportunities, and threats. I will identify the most important issues and opportunities, recommending strategies to mitigate damage and take advantage of opportunities. Improvement may not be instantaneous, but the findings will provide a direction for the company, providing them with objectives to develop a strategic plan around.

Background of Tesla:

Tesla was founded in 2003 by Martin Eberhard and Marc Tarpenning, later joined by Elon Musk, J. B. Straubel and Ian Wright in the first round of Series A funding (Baer, 2014). The founding group of engineers wanted to prove “people didn’t need to compromise to drive electric – that electric vehicles can be better, quicker and more fun to drive than gasoline cars (Tesla Inc., 2020). Tesla’s mission has always been “to accelerate the world’s transition to sustainable energy” (Tesla Inc., 2020). Tesla is currently headquartered in 3500 Deer Creek Road, Palo Alto, CA. 94304; incorporated in Delaware. The current board members are as follows:

· Elon Musk

· Robyn M. Denholm

· Ira Ehrenpreis

· Larry Ellison

· Antonio J. Gracias

· Steve Jurvetson

· James Murdoch

· Kimbal Musk

· Kathleen Wilson-Thompson

Tesla’s first product, the Roadster, was launched in 2008 and was an all-electric sports car. The company started with a high priced item, luring in investors with capital before scaling down to other products. The company currently has a vehicle line of the Model S, 3, X, and Y. The popular roadster is set to make a reappearance in the coming years with improved technological design and performance. To complete the main theme of sustainability Tesla invented and designed the Powerwall, Powerpack, and Solar Roof for homes. Each item is designed with the same principles of moving away from carbon-based fuels, to ones that involve renewable energy. Tesla states, “Electric cars, batteries, and renewable energy generation and storage already exist independently, but when combined, they become even more powerful – that’s the future we want” (Tesla Inc., 2020).

The following section will outline the main issues and opportunities and a recommendation of action to take advantage or prevent disadvantages.

Key Issues/Opportunities and Recommendations:

The opportunity found through the lens of Business Information Systems is the collaboration between multiple firms to build the electric vehicle (EV) infrastructure. The downside to an all-electric vehicle is the distance that can be traveled before having to recharge. There are few to none infrastructure development outside of big metropolitan areas. The battery technology will improve in time with the advancements in technology, but the need for charging stations will still be for nationwide travel. To put it into perspective, think about every gas station in just a single town or city, the amount of charging stations will need to mirror the number of gas stations. Working with other companies to start the development will be crucial to one day meet that goal of 100% sustainability.

Through the scope of Financial Management the main opportunity deals with the investment overseas. Having the ability to produce vehicles in countries, such as China, will open up the door for brand awareness globally, not to mention after the initial investment in production, the cost of building a vehicle will decrease, due to the lower cost of labor in countries outside of the US. The investment will not be cheap, but the long run profitability makes the idea feasible.

Viewing the company through Managing and Leading Organizations the objective for the company should be to hire new executive leaders, or insist on keeping the leaders they have now. The problem isn’t so much the individual leaders and the management styles they bring to the company, but the constant turnover the firm has. A stable leadership base is vital to the productivity of the organizations, since human capital is the one of the most valuable assets a firm holds.

Through the lens of Principles of Marketing the main recommendation is to target the younger generation of young professionals and college students who will become the target market, the product or service main focus on a particular segment group of consumers based on specific demographics (Hartley & Kerin, 2017), as they advance in their careers. Early introduction is essential for the firm to ensure the consumers inherit the interest in the value and beliefs in the company. Early adoption will allow the company to build a sustainable market base comprised of future consumers.

The final class to identify opportunities and threats, is through the view of Strategic Management. The possible outcome is the development of new hardware or software that gives Tesla a technological advantage down the road as the companies continue to grow, through the beginning of collaboration and extending microloans, “allow the poor to break the cycle of poverty by building small businesses that provide them with a sustainable livelihood” (Stead & Stead, 2014, p. #).

The next section will begin the strategic audit, starting with Financial Management BUSB 361.

Financial Management BUSB 361

The following section will outline the vital financial strengths, weaknesses, opportunities, and threats, review the current stock market performance, and end with a conclusion of the main factors of the S.W.O.T analysis for future growth and potential of Tesla.

Strengths:

Recognized Premium EV Allows Premium Pricing. The ability to sell vehicles at a premium price gives Tesla the possibility to increase the variable cost ratio (1-contribution margin ratio), a ratio that compares the cost of production to the amount of revenue and is one indicator of profitability (Brigham & Houston, 2014). Tesla can output a better decimal percentage, averaging .78 (Tesla Inc., 2011-2019), by increasing sales revenue the profitability in production, for all vehicle types, will increase. The contribution margin ((sales revenue – variable costs) / sales revenue)), calculates a per unit profitability of a given product (Brigham & Houston, 2014). Therefore another indicator of the cost efficiency of creating vehicles, which Tesla is sitting at an average of .22 (Tesla Inc., 2011-2019). The ability to sell at a premium price allows Tesla to move towards sustainable cash flow. The previous company history of net income losses gave potential investors a worrisome feeling. Net income is the operating income after deducting all expenses (Brigham & Houston, 2014). Nevertheless, the influence and ingenuity of Elon Musk have kept investors' faith and lured new investors to keep the firm from bankruptcy during troubling years.

Growing Vehicle Sales. The growing sales of vehicles are a great sign of productivity and delivery. The company has had problems with manufacturing and stable production, making the growth potential of vehicle sales impossible. The sales revenue has doubled from 2017 (~$8.5 billion) to 2018 (~$17.6 billion), giving Tesla a chance to return to a positive net income (Tesla Inc., 2011-2019). The decisive turn around has enabled Tesla to increase the operating margin, although the company has some more work to be done, to get out of a negative operating margin.

Use of Information Technology. Another way Tesla has increased profits is by employing the information technology concept, where “Companies are linking networks of personal computers to one another, to the firms’ own mainframe computers, to the Internet and the World Wide Web, and to their customers’ and suppliers’ computers” (Brigham & Houston, 2014, p. 9). This information technology concept suggests that the modernizing world will use these linked networks to make more informed financial decisions. The advantage for Tesla is the exclusive connection between the vehicles and battery packs, to Tesla’s network for updates and continual improvement. Updates continually come out for patches and bugs, much like a modern computer. The company has all the products directly connected to detect problems, analyze information, and update products from any year when needed.

Weaknesses:

Price of Non-Standard Vehicle Manufacturing. The non-standard line of productions by offering different vehicle layouts has made productivity unstable and the price of manufacturing high. “Over the years, we have been gradually simplifying options for Model S and Model X by standardizing options,” to resemble the cheapest priced Model 3, “which results in significantly lower manufacturing cost” (Tesla Inc., 2018, p. 2) Without standardization the company gives the possibility of keeping costs high and vehicle production unstable, leading to less deliveries and unsatisfied customers. The higher costs in production, would result in other financial metrics to worsen.

Poor Financial Metrics. The metrics from the last ten years averaged terrible results in comparison to the industry averages. Some of these metrics include the current ratio, return on common equity (ROE), return on assets (ROA), inventory turnover ratio, and earnings per share (EPS). The first ratio, the current ratio, falls under liquidity ratios that “show the relationship of a firm’s current assets to its current liabilities, and thus its ability to meet maturing debts” (Brigham & Houston, 2014, p. 119). The current ratio is “calculated by dividing current assets by current liabilities,” and is “the most commonly used measure of short-term solvency” (Brigham & Houston, 2014, p. 90). The next two ratios are part of the profitability ratios, which “show the combined effects of liquidity, asset management, and debt management policies on operating results” (Brigham & Houston, 2014, p. 119). ROE is “net income available to common shareholders divided by common equity” (Brigham & Houston, 2014, p. 107). ROA takes the “net income and divides it by total assets” (Brigham & Houston, 2014, p. 107). Inventory turnover ratio is part of the asset management ratios and is calculated by taking sales and dividing by the average inventory (Brigham & Houston, 2014). The asset management ratios “measure how effectively a firm is managing its assets (Brigham & Houston, 2014, p. 119). EPS, “net income divided by the number of shares of common stock outstanding,” and “there is a high correlation between EPS, cash flow, and stock price, and all of them generally rise if a firm’s sales rise” (Brigham & Houston, 2014, p. 27).

It is good to note that the metric are below the industry average, but that does correlate to failure in every instance. “Although industry average figures are discussed later in some detail, it should be noted at this point that an industry average is not a magic number that all firms should strive to maintain — in fact, some very well-managed firms will be above the average while other good firms will be below it” (Brigham & Houston, 2014, p. 90).

Opportunities:

The opening of the Gigafactory in Shanghai, China, has provided the opportunity of global market sales for the Model 3 in a country with the highest population in the world. The pollution for many major cities in China is harmful and unsustainable, providing EV makers the ability to tap into a solution for a country needing to use less carbon-based fuels. The company will be able to reduce costs, therefore returning a higher profit. The Purchase Power Parity (PPP), implies that “the level of exchange rates adjusts to cause identical goods to cost the same amount in different countries” (Brigham & Houston, 2014, p. 765). With lower manufacturing costs in Shanghai, Tesla will still be able to sell vehicles for the same price as the United States.

The increasing battery functionality of the power storage units that utilize solar power has enabled Tesla to start moving a new product into a more significant section of the market. The company can use the countries of Europe and Australia, which have high energy costs, the potential for efficient solar power units. "We see growth opportunities for Powerwall not only in North America, but also in Australia and Europe where electricity rates are high and solar panels combined with Powerwall units will help reduce electricity bills" (Tesla Inc., 2018, p. 3). Globalization has made it essential for companies to be connected to markets around the world and strategize for ways into different segments. Tesla's opportunity stems from the uniquely carbon-free premium products it offers and is the first to control this premium electric vehicle (EV) market. Other companies have attempted to make hybrid electric vehicles (HEVs), but they have not come close to the success of Tesla's premium EVs.

Threats:

The potential threats in the EV sector stem from other automaker companies. The EV market has a large portion of lower-priced vehicles that directly impact the sales of Model 3 vehicles. The influence of EV has forced other luxury brands to start delivering EV’s. The luxury car companies are a more significant threat since they are directly competing for the same customer base. Porsche is introducing the new Taycan Models at $100,000, the first wholly EV by Porsche. The assumption is that this is just the first line of models for the competing firm to introduce (Porsche, 2020). The customers who are buying the lower-priced standard EV’s are not in the market space that the majority of Tesla’s customers base, so those competitors, such as Honda, are not a direct threat as of the moment, but could be a decade from now.

Leadership has been an issue in the past since the actions of Elon Musk can directly influence the share price and investor trust. The new leadership has given stability to the top management that Elon Musk was unable to provide since his ingenuity and uniqueness has made investors feel uneasy and nervous. Multiple examples ranging from the SEC telling Musk to resign as the CEO, from the time Musk openly partook in drug activities and paraphernalia on the Joe Rogan Podcast, has directly correlated with a drop in stock price, reflecting a lack of investor trust in the leadership. This threat can also be resembled as a weakness since it stems internally, but the outside regulators, like the SEC, can do more damage after internal shenanigans.

Stockholder wealth maximization, “translates into maximizing the price of the firm’s common stock” (Brigham & Houston, 2014, p. 16), is the last piece of information that may not mean anything about the actual profitability or strength of a company’s finances. However, it does show investor confidence since the initial public offering (IPO) in the management or vision of Tesla. The IPO is the first time a company offers common stock shares to the public via a stock exchange (Brigham & Houston, 2014). The company has yet to post a net income profit on a 10-K report, starting from data in 2010 (Tesla Inc., 2011-2019). Years of net income loss is astonishing, considering the number of investments the company has been able to secure from different investors and investment avenues.

Conclusion/Recommendations:

To conclude, the opportunity for Tesla is the production overseas as the Gigafactory in China starts to produce Model 3s, with lower manufacturing costs and keeping all prices of the Model 3 constant, it will lead to rising cash value for the company. It is providing new opportunities and more capital to invest in the research and development, the heart and soul of Tesla. Ties with the growing sales and streamlining of production, more cash will be available to invest in the solar panels, battery packs, and autonomous driving technologies. The company has produced years of net income losses. However, faith in the brand and technology has kept investor confidence, along with the finished product, the Tesla vehicle's reliability, and unique design functions.

The company has addressed the weakness of non-standard manufacturing for multiple lines of vehicles, and streamline improvements in production have started. The threat/weakness of leadership stems from Elon Musk, who must not be allowed to be CEO, even after his penalty of three years has been served. He is erratic and displays considerable objectional information as truth, and along with the inability to fulfill every hopefully optimistic promise on Twitter. Examples of the Twitter incidents will be provided in the Principles of Marketing BUSB 340 and Managing and Leading Organizations BUSB 330 sections of the strategic audit. Elon as the innovator and ingenious individual he has proved to be, will serve the company better in another capacity, other than the role of CEO. Overall the financial stability of Tesla looks promising with more strengths and opportunities than threats and weaknesses.

The following section will investigate the strengths, weaknesses, opportunities, and threats, using concepts from PRINCIPLES OF MARKETING BUSB 340.

Principles of Marketing BUSB 340

The SWOT analysis determines a company's strengths, weaknesses, opportunities, and threats, is "the foundation upon which a firm builds its marketing program" (Hartley & Kerin, 2017, p. 41). The following section will outline the vital marketing strengths, weaknesses, opportunities, and threats, and ending with a conclusion of the main factors of the SWOT analysis for future development and progression.

Strengths:

Ability to Apply Prestige Pricing. The Four P's of Marketing, price, product, promotion, and place (Hartley & Kerin, 2017), are the essential traits of a successful company. Tesla's introduction was able to incorporate all four concepts with the introduction of the first product. The initial launch of Tesla started with the marketing technique, prestige pricing, when consumers perceive price as an indication of quality or prestige. A high price tag keeps consumers concerned with quality, prestige, and continual intrigue into the product (Hartley & Kerin, 2017). The first car introduced was the Roadster, an electric-vehicle (EV) sports car, starting at $80,000 (DeBord, 2019). People who had a disposable income are the main aim of prestige since the price was out of the range of most middle-class citizens in 2008. The company used prestige pricing to create brand equity, which resides in the minds of the consumers and results from what they have felt, seen, and heard about brand overtime (Hartley & Kerin, 2017), from scratch. Once Tesla created a couple of Roadsters, they were able to prove the quality and feasibility of building EVs, expanding to new models that were more affordable for a broader market segment.

Product Differentiation. The next biggest strength of the firm is differentiation, a change in the attributes or selling point of a product or service that differs from a similar product or service (Hartley & Kerin, 2017). The introduction of electric cars started in the early 20th century when a third of all vehicles on the road were electric until the introduction of the Model-T by Ford (Department of Energy, 2015). The cars stayed in the dark until the EV1 by GM, but the car did not take off like the hybrid vehicles of Toyota, the first mass-produced hybrid vehicle (Department of Energy, 2015). Enter Tesla, with a new model of what an EV vehicle, a sporty vehicle, reliable, and modern version of the early 20th century dreams of engineers.

Weaknesses:

Demonstrate an Understanding of Ethics vs. Law. Ethics are the moral principles and values that govern the actions and decisions of an individual or group; guidelines on how to act rightly and justly when faced with moral dilemmas (Hartley & Kerin, 2017). Whereas ethics deal with personal moral principles and values, laws are society’s values and standards that are enforceable in the courts (Hartley & Kerin, 2017). Tesla consumers have shown high value in the values and principles the firm, tracked by the increasing sales volume shown in the finance section. Now the problem with Tesla is not that they are not abiding by the law, but there are a couple of situations that can hurt the marketing potential, and contribute to a decline in brand equity. 

The first instance comes from empty promises and predictions on the future potential of the company’s profits. “Tesla made 0 cars in 2011 but will make around 500k in 2019” (Elon Musk, 2019). “Am considering taking Tesla private at $420. Funding secured” (Elon Musk, 2018). The Securities and Exchange Commission has determined these statements are misleading and not in line with the law. Elon Musk is the opportunity and the weakness, depending on how he uses social media for marketing the company and expressing ideas.

Opportunities:

Generational Cohorts Sharing Similar Values. New market opportunities have emerged with the onset of the internet. The advantage of connecting and communicating in ways that were impossible just a decade earlier. To achieve the best marketing results on the internet, Tesla will have to first identify the correct market base. The attack this problem the marketing department should focus on generational cohorts. Generational cohorts, categorizing people into groups based on the year they were born and that hold certain attributes and values (Hartley & Kerin, 2017). Tesla has three potential cohorts to research. The first are the Baby Boomers (1946-1964) with a population of 76 million. They “will be 65 or older by 2030, and hold interests in health, fitness, retirement housing, financial planning, and appearance” (Hartley & Kerin, 2017, p. 76). The second option is Generation X (1965-1976) with a population of 50 million. This group is “well educated, has declining birth rates, supportive of racial and ethnic diversity is self-reliant, becoming more dominant over other cohorts” (Hartley & Kerin, 2017, p. #). The third option is Generation Y (1977-1994), holding a population of 72 million. This segment are the children of baby boomers, they have a “strong influence on music, sports, computers, video games, and networking” (Hartley & Kerin, 2017, p. 76). The traits heavily associated with them include being strong-willed, passionate, holding a positive work-life balance, and enjoy personal experiences over the previous cohorts (Hartley & Kerin, 2017). The focus should primarily lie with Generation X and Y. These two cohorts have the highest possibility of holding the same values with Tesla’s, who also have the capital to continually purchase Tesla products.

Social Media Opportunities. Social Media is the best way to sell to these generational cohorts. The cohorts are not technology challenged and embrace technological innovation. The CEO, Elon Musk has shown to be active on social media and possess the ability of self-disclosure, "individuals want to make a positive impression to achieve favorable age with others," and the "greater self-disclosure is likely to increase one's influence those reached" (Hartley & Kerin, 2017, p. 541). Elon Musk is mostly active on Twitter, but the potential for Tesla is more substantial involvement on the social media platform Facebook. “The benefits of using Facebook is the magnitude of content and users; has 936 million active users, process 10 million messages a day, 82% of the people live outside of the United States, has over 2 million advertisers” (Hartley & Kerin, 2017, p. 544). Social Media is accounting for a far greater number of advertisements, compared to the traditional advertisement avenues of television, radio, and newspapers. From 2016 to 2019, the amount spent on social media advertising has doubled from $15.63 billion to $32.18 billion (Guttman, 2019). The ability to advertised on social media and also have an inside voice project the values of the company, Elon on Twitter, will put the company ahead of other competitors.

Consumers Advertising Products. Media richness, "involves the degree of acoustic, visual and personal contact between two communication partners," and, "the higher the media richness and quality of presentation, the greater the social influence" (Hartley & Kerin, 2017, p. 541). Media richness does not need to be produced by the marketing company, the highest influencers of consumers is other consumer through user-generated content. “User-generated content (UGC) refers to the various forms of online media content that are publicly available and created by end users” (Hartley & Kerin, 2017, p. #). People are more likely to trust someone that is a close friend, colleague, or family members content over an advertisement about why a particular product is the best money can buy. Use-generated content effects people, similarly to word of mouth advertising. Word of mouth advertising is “the influencing of people (friends, family and colleagues) during conversations. It is the most powerful and authentic information source for consumers because it typically involves friends viewed as trustworthy” (Hartley & Kerin, 2017, p. #). The only way to have people adopt these practices is to target the people who hold the same values and actually construct a product that consumers will identify with.

Threats:

New and Existing Competition. The biggest threat Tesla faces is the marketing campaigns started by a variety of car companies, attempting to penetrate the emerging electric vehicle market. The electric vehicle market only accounts for 2% of all sales and is trending upwards in growth (Tesla Inc., 2018), leaving plenty of room for new advances in electric vehicle technology. These new competitors are defined as new entrants, the companies who are new to the market, and become a new competitor. (Hartley & Kerin, 2017, p. #). “The markets in which we operate are highly competitive, and we may not be successful in competing in these industries. We currently face competition from new and established domestic and international competitors. (Tesla Inc., 2011-2019). Tesla does have a first-mover advantage, the first company to hold a large majority of a particular market (Hartley & Kerin, 2017), in the premium EV vehicle market, but not the first movers in terms of the first electric vehicle.

Technology as an Environmental Force. The Five Environmental Forces are, social, economic, technological, competitive, and regulatory (Hartley & Kerin, 2017). The environmental force with the highest potential to disrupt Tesla’s market share in the EV industry is the technological force. The technological force involves “changing technology, technological impact on consumer value, and technology enabled analytic” (Hartley & Kerin, 2017, p. #). The adoption of electric vehicles has not been rapid, as seen by the 2% total market penetration, leaving companies with the uncertainty of the future of vehicle power. Research by outside entities into other technologies is a constant threat; nobody can predict the future of technology or the power it will yield in a decade. “Our future growth and success [are] dependent upon consumers’ willingness to adopt electric vehicles and specifically our vehicles … and expect to face competition from others in the future, including competition from companies with new technology” (Tesla Inc., 2011-2019).

Recommendations:

The first recommendation is to target the younger generation of young professionals and college students who will become the target market, the product or service main focus on a particular segment group of consumers based on specific demographics (Hartley & Kerin, 2017), as they advance in their careers. Early introduction is essential for the firm to ensure the consumers inherit the interest in the value and beliefs in the company. Early adoption will allow the company to build a sustainable market base comprised of future consumers. The goal is to target people early enough and give exposure to a product that a consumer may not be able to afford at the moment, but will be able to afford as they advance in their career. Competitive advertising that promotes a specific brand’s features and benefits to persuade the target market to select the firm’s brand rather than a competitor (Hartley & Kerin, 2017).

The other recommendation is to attempt to keep Elon from having the Securities and Exchange Commission from coming down on the entire company, rather than the single individual. The media richness is high on social media, and the presence of Elon is infectious for the consumer and believers of Tesla. Elon is a benefit to the company, rather than a threat, but all it takes is one quote that creates a domino effect. Overall, the company’s marketing techniques from the start to the present have been sound and practical. The quotes of Elon on Twitter could have impacted the company positively after a couple of days of small stock hits. As the company has gained more attention, the sales have spiked, and they have become a dominant force in the car market, EV aside.

The next section will cover the strengths, weaknesses, opportunities, and threats, from the view of Strategic Management BUSB 481.

Strategic Management BUSB 481

A SWOT analysis helps management discover a company's strengths, weaknesses, opportunities, and threats (Stead & Stead, 2017). The following section will outline the vital strategic management strengths, weaknesses, opportunities, and threats for the future expansion and sustainability of Tesla. The section will conclude with a summary using Michael Porters Five Forces Model and several recommendations.

Strengths:

Tesla is the motor vehicle embodiment of sustainability, “providing a high quality of life for current and future generations” (Stead & Stead, 2014, p. #), and minimizing or ultimately reducing the impact on the environment. It is integrated into the mission of Tesla, to “accelerate the world’s transition to sustainable energy” (Tesla, 2020). Sustainability is an essential factor that will help the image of the company in the consumer mind, it aligns with consumer values, “enduring, emotionally charged abstractions about matters that are important to people” (Stead & Stead, 2014, p. #). The world has become more concerned about the degradation of the natural environment and the negative impacts that will ensue if businesses do not start implementing proper practices. The concerns are forcing companies to look at their entire business, from energy output, waste accumulation, carbon admissions, and other environmental impacts that could harm the environment. Tesla has an advantage in this arena since sustainability is the top priority for the company.

Tesla's original idea of removing carbon from everyday life started with an all-electric vehicle, the Roadster. As the company grew, they started developing carbon-free energy generating and storing products, going outside of the niche, proving the company lived by the mission statement. "Tesla believes the faster the world stops relying on fossil fuels and moves towards a zero-emission future, the better" (Tesla, 2020). The ideas laid forth define them as an embracer, "those strategic managers who preemptively put sustainability at the top of their strategic agendas because they believed that sustainability was important to their firm's competitiveness" (Stead & Stead, 2014, p. #). To this day, the company operates under Triple Bottom Line, "managerial commitment to all three dimensions of sustainability (economically, society, natural, environment)" (Stead & Stead, 2014, p. #). An example is the environmental impact report that outlines, product impact, operational impact, supply chain, and employees and culture (Tesla, 2018).

Weaknesses:

The key to maintaining a positive organizational culture, “composed of artifacts (i.e., logos, products, and icons), norms, values, beliefs, and assumptions shared by its members” (Stead & Stead, 2014, p. #), is to keep everybody a part of the team. To keep the top management steady since they distribute and portray the companies values. The CEO “creates value for the firm” (Stead & Stead, 2014, p. #) and is, therefore, the person ultimately responsible for the organizational culture. The turnaround in senior management positions, in particular, has been startling. The consecutive years of 2018 and 2019, Tesla had 34 senior positions replaced, and according to the story, “Tesla is known for its high rate of executive turnover” (Matousek & Rapier, 2019). It is hard to create and keep values with high rates of executive turnover.

The turnaround situation hurts the company’s reputation with the stakeholders, “those individuals, groups, and entities that affect or can be affected by the organization’s purpose and actions, participate and provide inputs into the SSM strategy formulation process” (Stead & Stead, 2014, p. #). A situation that may not be the ultimate downfall, but could undoubtedly hurt the board of directors, “ elected by the shareholders to represent their interests” (Stead & Stead, 2014, p. #). The board of directors has the possibility of replacement if they cannot keep talented personnel, especially in the executive positions. The situation needs addressing before the problem of turnover worsens, leaving doubts in the eyes of the shareholders.

Opportunities:

The world is expanding and changing simultaneously, creating markets in parts of the world that were once behind the development stage of countries. The Base of the Pyramid “85% of the world that are untapped markets of the world’s poorest poor in undeveloped and developing markets” (Stead & Stead, 2014, p. #). Expansion into countries in the developing markets needs to be part of the long term strategy to start gaining customer trust and support. The possibility of gaining partners that thrive in the technology sector of the industry is another result that could Tesla an innovation advantage if the partnerships are maintained throughout the years.

Threats:

Threats, “factors in the external/internal environment that prevents a planned goal” (Stead & Stead, 2014). Tesla’s first threat that has the possibility of disrupting plans are new entries. Companies that are starting to move into the electric vehicle (EV), solar energy, and solar battery markets will undoubtedly absorb some of the company’s market share. The companies that have been obtaining artificial intelligence (AI) information for self-driving cars will play the most notable threat. Whoever can achieve the AI self-driving vehicle first will have a major advantage in the future and could make a large section of the vehicle market obsolete.

The second and most prominent threat is an established car company entering the EV industry. The amount of capital that established companies can put into their EV vehicle could mimic that of Tesla, especially a luxury car brand, who could fight for the most luxurious EV. The extraordinary detail about the threats of other car companies is that they would be characterized as casual adopters. Casual adopters are “firms that were late into the sustainability market and invested only in short-run, eco-efficient strategies (which do not afford much of a competitive advantage today)” (Stead & Stead, 2014, p. #). Many firms adopted hybrid vehicles, thought to be sustainable by a large section of consumers who adopted the Prius. Hybrids, regrettably, are not sustainable, Elon Musk even concluded, “They are really just gasoline powered cars with a little battery assistance...,” and “...as a friend of mine says, a world 100% full of Prius drivers is still 100% addicted to oil (Tesla, 2006).

Michael Porters Five Forces Model:

The following will outline, Michael Porters Five Forces Model “(1) the risk of entry from potential competitors, (2) the intensity of rivalries among established firms within the industry, (3) the bargaining power of suppliers, (4) the bargaining power of customers, and (5) the threat of substitute products” (Stead & Stead, 2014, p. #) starting with the most severe force.

(1) The rivalries among the established firms create the most important force that could negatively impact Tesla. Large, capital-rich firms have the opportunity to compete with Tesla’s growing cash base. (2) Tesla has to rely on rare minerals for the battery packs it creates for homes and vehicles, making the supply chain subject to regulation and fluctuations in the market. (3) Substitute products, including AI vehicles and new fuels, could create a problem, more significant than the combustible engines have with electric vehicles. (4) The risk of entry from new technology companies could potentially make Tesla vehicles obsolete unless a plan to change and innovate is already laid out. (5) Consumer tastes weaker force that could be harmful, if Tesla does not remain innovative, the company could lose customers to other luxury car brands.

Conclusion/Recommendations:

The first plan is a lengthy strategic plan that cannot be estimated on success, but begins with microfinancing, “a critical role in creating and supporting local entrepreneurs at the base of the pyramid” (Stead & Stead, 2014, p. #), is a possible solution in entering the countries that are going to begin going into development. Helping less fortunate countries understand the importance of sustainability and educating them on the same values the company operates under will create a customer base for the future. Another possible outcome is the development of new hardware or software that gives Tesla a technological advantage down the road as the companies continue to grow, through the beginning of collaboration and extending microloans, “allow the poor to break the cycle of poverty by building small businesses that provide them with a sustainable livelihood” (Stead & Stead, 2014, p. #).

Finally, the company needs to take a hard look at that turnover rate for senior management. This behavior of constant hiring, firing, retiring, and leaving does not set a gold standard example of keeping and maintaining employees. The problem has the possibility of leaking into to the lower stems of the company that will not necessarily destroy the company, but cost the company millions of dollars. The trend in many industries to constantly rotate senior executives is known, Tesla unfortunately is a little to known for these occurrences.

The next section will explore the strengths, weaknesses, opportunities, and threats of Tesla, employing concepts from BIS BUSB 333.

Business Information Systems (BIS) BUSB 333

The SWOT analysis determines a company's strengths, weaknesses, opportunities, and threats. The SWOT analysis is vital in determining the six strategic objectives in business information systems; operational excellence, new products, services and business models, customer and supplier intimacy, improved decision making, competitive advantage, and survival (O’Brien & Marakas, 2013, p. #). The following section will outline the key information system processes that contribute to the strengths, weaknesses, opportunities, and threats of Tesla. The section will end with a conclusion and recommendations to improve efficiency.

Strengths:

(1) Integration of Technology. The Tesla systems are connected through a controlled network, giving the car maker the ability to update and keep diagnostic statistics on every vehicle sold. The system uses basic information system fundamentals; input, output, feedback, and control (O’Brien & Marakas, 2013), to monitor and improve the functionality of the sytem. An information system is “any organized combination of people, hardware, software, communications networks, data resources, and policies and procedures that stores, retrieves, transforms and disseminates information to an organization” (O’Brien & Marakas, 2013, p. #). The primary or crucial information system for Tesla involves the numerous vehicle computer systems and the network on which they operate. The vehicles computer systems are responsible for the input, “capturing the data to be processed” (O’Brien & Marakas, 2013, p. #). The computers use processing, “changing data into information” (O’Brien & Marakas, 2013, p. #). Each individual vehicles processes the input and sends the information back to the Tesla network via the servers output, “disseminating the information product to its destination” (O’Brien & Marakas, 2013, p. #). The feedback is “data about the performance of the system” (O’Brien & Marakas, 2013, p. #), that can be interpreted and presented to top management to create to useful software updates. Control, “monitoring the feedback to determine if the system is meeting its objectives” (O’Brien & Marakas, 2013, p. #), determines if the software is working correctly and if there are any minor discrepancies within the update.

(2) Ability to Update Vehicle Systems. Tesla vehicles can be updated like a phone or computer, providing the vehicles the opportunity for higher customization on the vehicle dashboard and for the company remain fresh in the mind of the consumer. The other important aspects of the system include monitoring control and power for safety concerns. The vehicle is a giant computer, that has the provided ability to be mobile for an owner. The computer inside of the vehicle, much like a smartphone, needs constant updating to remove bugs and update the performance. The ability to update the computer system gives Tesla an Information Technology (IT) competitive advantage, an important factor in gaining value and technological superiority over competitors (O’Brien & Marakas, 2013).

Weaknesses:

(1) Vehicle Range. The vehicles are the most technologically advanced vehicles on the market that are compatible with the 21st century systems and ideas. The ideas include moving away from carbon dioxide fuels, to more sustainable options, the problem is the technology is not advanced enough for long distance travel. The network system of charging systems has yet to be laid out in stretches that are realistic for the everyday consumer of vehicles. The city dwellers can easily make a case for owning an electric powered vehicle, but rural areas will need a wider range of networks for electric vehicle practicability.

(2) The Limited Availability of Charging Stations. The company can only use charging stations, currently, designed and implemented by the company. To cover the entire US, the charging stations would have to be endorsed by the government, to ensure the capital needed to tackle a project of such size is secured. The other possibility is to collaborate with other companies to create charging stations that are compatible with multiple vehicles. The weakness is the product differentiation of the charging stations developed by Tesla, the charging stations are superior, in regards to the amount of time it takes to charge a vehicle. The differentiation is advantage only if the network can be expanded to a broader range of consumers. Apple is a company is known for differentiation. For example, the chargers utilized by its cellphone products allows them to make the consumer have to use their developed products. The problem is that installing charging stations is a much larger and expensive project then simply changing the charging port on a cellphone.

Opportunities:

(1) AI Enabled Vehicles and Applications. The ability to create machine learning vehicles and software would enable vehicles to achieve autonomy, driving without human input. The utilization of spatial analysis, complex analytical functions such as visualization and modeling (O’Brien & Marakas, 2013), can be inserted into the software that controls the vehicle cameras. Elon Musk is relying on cameras to obtain autonomy, and says, “Anyone relying on Lidar is doomed” (McFarland, 2019). “LIDAR, which stands for Light Detection and Ranging, is a remote sensing method that uses light in the form of a pulsed laser to measure ranges (variable distances)” (National Ocean Service, 2020). Lidar is the system being used by most companies to create autonomy in vehicles, but Elon believes using machine learning cameras will be the optimal and most realistic way to achieve autonomy in vehicles. Whatever the system, whoever can create the AI vehicle first will control the vehicle largest segment of the market in the future.

(2) Creating New Products. The company is an E-Business, “use of Internet technologies to empower business processes, e-commerce, and enterprise collaboration within a firm and its customers, suppliers, and stakeholders” (O’Brien & Marakas, 2013, p. #). The companies incorporates E-Business to a higher degree over other car companies by the practice of E-commerce, “using the Internet to sell products” (O’Brien & Marakas, 2013). A customer orders a vehicle via the Internet, and similar to an Amazon package, then the vehicle is delivered to the customer address. Tesla is the first car company to not only utilize the Internet, but embrace the usage of advertising and selling directly via the Web. The company can take advantage of the online presence to push other products, such as modifications, backgrounds, games, and streaming platforms for the gigantic dashboard screen. The car has to charge for a couple of hours on longer trips, about every 300 miles. Having the ability to stream or play games on the dashboard while the car is charging could be a lucrative business.

Threats:

(1) Subject to a Potential Hack. The company is essentially an online network that connects every aspect of their business, leaving the possibility of a hacker breaking into the network. The company is not an open source software that, “grants a license that allows developers free access to the source code in order to modify” (O’Brien & Marakas, 2013, p. #), but is a closed source software. This allows Tesla security that cannot be obtained with an open source platform that is more vulnerable to hackers. This does eliminate the possibility of a security breach, but simply reduces the risk. The company must maintain the highest degree of security protocols to ensure a bug is not implanted into the system. A bug could be detrimental since every system is connected through a main network.

(2) Companies/Countries not Practicing Copyright Infringements Laws. Copyright laws are part of American Law, but not every country participates with the same mindset. Countries, such as China, do not have copyright laws and have the capital to replicate the exact software, system, or computer. Tesla has been involved with setting up and operating a manufacturing plant in China, but that does not mean the country or a company within the countries border will not take advantage of the technology established and implemented by Tesla.

Conclusion/Recommendations:

Tesla is a virtual company, “uses information technology to link people organizations” (O’Brien & Marakas, 2013, p. #). The ability for Tesla to use the Internet and information has given the company a competitive advantage in many aspects, including vehicles computer software, battery power, and selling vehicles online. The company will need to continue improving the ability of their network and be careful not to let company’s trade secrets on technology be disclosed or stolen by outside entities.

The first recommendation is for the company to put additional capital into the research and development of AI driven vehicles. Technology is continually advancing at unprecedented rates and Moore’s Law is a prime example. Moore’s Law, “the number of transistors on a chip more broadly interpreted the power or speed of a computer will double every 18-24 months” (O’Brien & Marakas, 2013, p. #). This law has had the time halved to 12 months (O’Brien & Marakas, 2013). This example shows technology will continue to accelerate as more people invest into it and new discoveries are exposed. It would behoove Tesla to do everything in their power to be the first one to the finish line, i.e. put more additional income into research and development.

The second recommendation is to collaborate with other car companies to place the necessary infrastructure required for electric vehicles. The project requires capital and investment that will be extremely hard for a singular company to take on, but if multiple billion dollar companies tackle the problem, the feasibility of success is improved. This will help Tesla move towards the company’s vision of sustainability and if they are the first to suggest the idea of working together, it could increase brand equity.

Managing and Leading Organizations BUSB 330

The following section will outline the indispensable factors involved in managing and leadership within Tesla utilizing a SWOT analysis. The section will begin with a vital function that all managers and leaders must have in an organization, communication, and end with a conclusion of the main factors recognized for future stability and transformation.

The key to managing and leading organizations, and arguably the essential function of an organization that ensures a company can meet deadlines and mitigate errors, is communication. Communication "provides the information individuals and groups need to make decisions by transmitting the data needed to identify and evaluate choices" (Judge & Robbins, 2017, p. 346). Communication starts with the sender, the person "in charge of the original message and initiates a message by encoding a thought" (Judge & Robbins, 2017, p. 346). The sender incorporates encoding "the language and use of words to communicate a certain message" (Judge & Robbins, 2017, p. 346). The message is "the actual physical product of the sender's encoding, the literal words in speech or the literal words in writing" (Judge & Robbins, 2017, p. 346). The individual in charge of the message chooses a channel of speech, the "medium through which the message travels, where the message could be in the form of writing, speaking, body movements etc." (Judge & Robbins, 2017, p. 346). The people who see, read, or hear the message use decoding, "translating the symbols into an understandable form, taking what we heard, read, or saw and interpreting" (Judge & Robbins, 2017, p. 346). The person(s) the message designed for is the receiver (Judge & Robbins, 2017). When choosing the channel and message, the sender must be aware of noise, "communication barriers that distort the clarity of the message" (Judge & Robbins, 2017, p. 346). The last part of communication is feedback, "the check on how successful we have been in transferring our messages as originally intended" (Judge & Robbins, 2017, p. 346). Determining the success can be done in two distinct ways; viewing the actions of the receiver(s) or having the receiver(s) respond with a statement that displays understanding. Strengths:

Adaption to a Changing Market. The consumer market is changing dramatically with the customs and values consumers now hold. Values are the "basic convictions about what is right, good, or desirable" (Celano, 2019, slide 18). The prior generations had less concern about the well-being of future generations or did not understand the impacts of carbon-based fuels as we do now. As the years went by, Tesla started a new idea of what can fuel a vehicle. The transformation of the car industry from gas-powered to electric-vehicle (EV) has changed the way the industry researches, develops and markets vehicles to consumers. The evidence of changing values is supported in the Marketing section of the paper, outlining the different generational cohorts' wants, needs, and values. The organizational leadership has instilled into the company the importance of moving to sustainable energy and not relying on carbon releasing fuels.

Tesla has continually upheld the values by incorporating a person-organization fit. The person-organization fit has three principles, “people high on extraversion fit well with aggressive and team-oriented cultures” (Celano, 2019, slide 23). Secondly, “People high on agreeableness match up better with a supportive organizational climate than one focused on aggressiveness” (Celano, 2019, slide 23). Lastly, “people high on openness to experience fit better in organizations that emphasize innovation rather than standardization” (Celano, 2019, slide 23). Tesla hiring process involves finding innovative engineers who enjoy methods that are not standardized. The reasoning being, innovation has led Tesla to be a significant competitor in the car market and has led to the expansion into the solar panel and battery technology fields. Weaknesses:

Inconsistent Messages to Stakeholders. The top management has contributed to the confusion around company messages and what they are attempting to portray. For example, in early February, Elon Musk tweeted, "Tesla made 0 cars in 2011, but will make around 500k in 2019" (Musk, 2019). Elon later in the day tweeted, "Meant to say annualized production rate at end of 2019 probably around 500k, ie 10k cars/week. Deliveries for year still estimated to be about 400k" (Musk, 2019). The two messages created cognitive dissonance, "incompatibility an individual might perceive between two or more attitudes or between behavior and attitudes" (Celano, 2019, slide 5). Attitudes are the "evaluative statements—either favorable or unfavorable—about objects, people, or events" (Celano, 2019, slide 3). Attitudes, broken down, reflect how a person feels about a given situation. The Securities and Exchange Commission (SEC) decided Elon's statement falsely influenced investors and stockholders' attitudes by creating cognitive dissonance. The SEC determined this messaging needed to be regulated and forced Elon to have his tweets about Tesla monitored and reviewed before they could be posted.

Opportunities:

Introducing Stable Executive Leader. Leadership is "the ability to influence a group toward the achievement of a vision or set of goals" (Celano, 2019, slide 4). An organization's leadership is responsible for significant aspects of business, like stories, rituals, material symbols, and language. Opportunities to create cultural customs enable the company to withstand the hard times and bounce back from potential hazards, such as a market crash. Stories can "anchor the present in the past and legitimating current practices" (Judge & Robbins, 2017, p. 541). An example is hearing the story of how the Tesla started and the idea of becoming 100% sustainable. Rituals "repetitive sequences of activities that express and reinforce the key values of the organization—what goals are most important, and/or which people are important versus which are expendable. (Judge & Robbins, 2017, p. 541).

Material symbols "convey to employees who is important, the degree of egalitarianism top management desires, and the kinds of behavior that are appropriate" (Judge & Robbins, 2017, p. 542) Material symbols include the look of Tesla vehicles and the type of people that work for the company. Positive material symbols depend on individual perspectives, but hiring people that exemplify the value and ideas of Tesla will ensure the customs continue. Language is "unique terms to describe equipment, officers, key individuals, suppliers, customers, or products that relate to the business. (Judge & Robbins, 2017, p. 543) Examples of specific cultural language include jargon, acronyms, and how people speak to each other. Leaders are responsible for stories, rituals, material symbols, and language that will bond the entire company. stories, rituals, material symbols, and language that will bond the entire company like a glue.

Threats:

Rising Conflict Potential. Conflict is a “process that begins when one party perceives that another party has negatively affected, or is about to affect negatively, something that the first party cares about (Celano, 2019, slide 13). Now conflict can be positive, such as “functional conflict, or conflict that supports the goals of the group and improves its performance” (Judge & Robbins, 2017, p. 459). For example, employees arguing about an upcoming project and deciding the best way to execute the project. This conflict is positive, as long as the argument is open, and people are putting forth good points of view, and the conflict at hand is managed correctly. Conflict can become bitter if not handled correctly, and if the managers/leaders are unable to maintain an orderly department that breeds positive conflict and trust.

Conclusion/Recommendations: The Lewin’s Three-Step Model, unfreezing the status quo, a movement to the desired state, refreezing to ensure changes become permanent (Judge & Robbins, 2017), outlines an effective strategy to implement recommendations. The recommendation is to hire executive leadership that contributes to the values of the company and ensures that ethical behavior will always be used. The process begins with unfreezing the status quo, the state at which the organization is currently at, or the equilibrium state (Judge & Robbins, 2017). Unfreezing makes sense to get people away from the normality of current leadership. To ensure growth, the company should find a socialized charismatic leader, leadership that conveys other-centered values by leaders who model ethical conduct (Celano, 2019, slide 33).

The search begins with movement to the desired end state, the new direction the company starts to go, by implementing a new idea or a new way of doing things (Judge & Robbins, 2017). The movement helps push people during a cultural shift, and finally, when they reach the cultural norm a company agrees with, the new culture needs to be reinforced to freeze the new norm. The leaders who embody socialized charismatic leader qualities, a combination of ethics and charisma, will start the refreezing stage. Refreezing, “without this last step, the change will likely be short-lived, and employees will attempt to revert to the previous equilibrium state” (Judge & Robbins, 2017, p. 612). Fundamentally refreezing new changes make it permanent. Once the company accomplishes the implementation of new leadership, the company reinforces this new equilibrium.

The next section will conclude the major findings of the strategic audit discovered by the SWOT analysis.

Conclusion

Not sure if this section is necessary, but I was basically going to pick three out of the five classes and discuss the three most important things I uncovered.

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