IPPTChap006_rev_6th_ed_MDOforstudents.pptx

Tesla, Inc. in 2018
Tesla was founded in 2003 by Martin Eberhard,
an entrepreneur who wanted to create a faster,
sexier electric car. In 2004, Elon Musk agreed to
fund the company and became Chairman of the
Board. A few years later Eberhard left, and Musk became CEO.
In 2018, Tesla had grown into a company with almost $12 billion in annual revenues that produced multiple car models, owned Solar City, produced energy storage systems (for example, Powerwall) and solar roofs.
The company’s expansion into multiple product lines and rapid production capacity expansion created large capital requirements for the firm.
Tesla missed several of its production goals in early 2018 causing investors to be concerned, but at the end of 2018 posted its first annual profit.
Tesla’s cars had rapidly attracted a large and loyal fan base and sales were growing at an impressive rate. But was Tesla trying to do too much too quickly?

1

Tesla, Inc. in 2019
Discussion Questions
What were Musk’s and Eberhard’s goals in founding Tesla?
How would you characterize competition in the auto industry?
What do you think are Tesla’s core competencies? Does it have any sources of sustainable competitive advantage?
What is your assessment of Tesla’s moves into (a) mass-market cars, (b) batteries (car batteries and Powerwall), (c) solar panels? Please consider both the motivation for the moves, and the opportunities and challenges for Tesla to compete in these businesses.
Do you think Tesla will be profitable in all of these businesses? Why or why not?
What do you think Tesla’s (or Elon Musk’s) strategic intent is?

Chapter 6
Defining the Organization’s
Strategic Direction

6

6-7
Overview
A coherent technological innovation strategy leverages the firm’s existing competitive position and provides direction for future development of the firm.
Formulating this strategy requires:
Appraising the firm’s environment,
Appraising the firm’s strengths, weaknesses, competitive advantages, and core competencies,
Articulating an ambitious strategic intent.

7

7

6-8
Assessing the Firm’s
Current Position
External Analysis
Two common methods are Porter’s Five-Force Model and Stakeholder Analysis.
Porter’s Five-Force Model
Degree of existing rivalry. Determined by number of firms, relative size, degree of differentiation between firms, demand conditions, exit barriers.
Threat of potential entrants. Determined by attractiveness of industry, height of entry barriers (e.g., start-up costs, brand loyalty, regulation, etc.)
Bargaining power of suppliers. Determined by number of suppliers and their degree of differentiation, the portion of a firm’s inputs obtained from a particular supplier, the portion of a supplier’s sales sold to a particular firm, switching costs, and potential for vertical integration.

8

8

6-9
Assessing the Firm’s
Current Position
Bargaining power of buyers. Determined by number of buyers, the firm’s degree of differentiation, the portion of a firm’s inputs sold to a particular buyer, the portion of a buyer’s purchases bought from a particular firm, switching costs, and potential for vertical integration.
Threat of substitutes. Determined by number of potential substitutes, their closeness in function and relative price.
Recently Porter has acknowledged the role of complements. Must consider:
how important complements are in the industry,
whether complements are differentially available for the products of various rivals (impacting the attractiveness of their goods), and
who captures the value offered by the complements.

9

9

Assessing the Firm’s
Current Position 3

Source: Michael Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors.

10

6-11
Assessing the Firm’s
Current Position
Stakeholder Analysis

Who are the stakeholders.
What does each stakeholder want.
What resources do they contribute to the organization.
What claims are they likely to make on the organization.

11

11

6-12
Assessing the Firm’s
Current Position
Internal Analysis
Identify the firm’s strengths and weaknesses.
Helpful to consider each element of value chain.

Source: Michael Porter, Competitive Advantage: Creating and Sustaining Superior Performance.

12
 
12

6-13
2. Assess which strengths have potential to be sustainable competitive advantage

Rare
Valuable
Durable

Inimitable

Resources are difficult (or impossible) to imitate when they are:
Tacit
Path dependent
Socially complex
Causally ambiguous
Assessing the Firm’s
Current Position

Competitive Advantage

Sustainable Competitive Advantage

13

13

Identifying Core Competencies
and Capabilities 2

Source: C. K. Prahalad and G. Hamel, “The Core Competence of the Corporation,” Harvard Review, May–June 1990.

6-15
Identifying Core
Competencies and Capabilities
Core Competencies: A set of integrated and harmonized abilities that distinguish the firm in the marketplace.
Competencies typically combine multiple kinds of abilities.
Several core competencies may underlie a business unit.
Several business units may draw from same competency.
Core competencies should:
Be a significant source of competitive differentiation
Cover a range of businesses
Be hard for competitors to imitate

15
 
15

6-16
Risk of Core Rigidities
When firms excel at an activity, they can become over committed to it and rigid.
Incentives and culture may reward current competencies while thwarting development of new competencies.
Dynamic capabilities are competencies that enable the firm to quickly respond to change.
E.g., firm may develop a set of abilities that enable it to rapidly deploy new product development teams for a new opportunity; firm may develop competency in working with alliance partners to gain needed resources quickly.

16
 
16

6-17
Strategic Intent
A long-term goal that is ambitious, builds upon and stretches firm’s core competencies, and draws from all levels of the organization.
Typically looks 10-20 years ahead, establishes clear milestones
Firm should identify resources and capabilities needed to close gap between strategic intent and current position.

17
 
17

Research Brief: Blue Ocean Strategy 1

Adapted from Kim, W.C. & Mauborgne, R. 2005. Blue ocean strategy. Boston: Harvard School Press.

Research Brief:
Blue Ocean Strategy 2
Managers can challenge the industry’s strategic
logic by asking the following four questions:
Which of the factors that the industry takes for granted should be eliminated?
Which factors should be reduced well below the industry’s standard?
Which factors should be raised well above the industry’s standard?
Which factors should be created that the industry has never offered.

20

6-21
Theory In Action
The Balanced Scorecard

Kaplan and Norton argue
that effective performance
measurement should
incorporate:
Financial perspective
Customer perspective
Internal perspective
Innovation and learning

21

21

22

FIGURE 6.7 Identifying the
Resource and Capability Gap

23

Summary of Chapter 6
Porter’s five-force model entails assessing
Stakeholder analysis involves identifying
To analyze the internal environment
Next the firm identifies its core competencies.
Sometimes core competencies can become core rigidities
Dynamic capabilities are competencies
A firm’s strategic intent is the articulation
Once the firm articulates its strategic intent,
The balanced scorecard is a measurement system

24

Discussion Questions
What is the difference between a strength,
a competitive advantage, and a sustainable
competitive advantage?
What makes an ability (or set of abilities) a core competency?
Why is it necessary to perform an external and internal analysis before the firm can identify its true core competencies?
Pick a company you are familiar with. Can you identify some of its core competencies?
How is the idea of “strategic intent” different from models of strategy that emphasize achieving a fit between the firm’s strategies and its current strengths, weaknesses, opportunities and threats (SWOT)?
Can a strategic intent be too ambitious?

25

25

area Motive Opportunities/Challenges
Mass market
cars
To help bring the mass
market to renewable
energy; to build
economies of scale in
production and
procurement
Opportunities:
The mass market is large and there is no electric vehicle accounting for a large portion of it
Challenges:
The mass market is fiercely competitive, and the mass market tends to be quite price
sensitive which is going to be difficult address with an electric vehicle since battery costs are
high.
Tesla (and Musk) lack experience in large-scale auto assembly.
If they are successful, they will be imitated which will put more pressure on the price.
Batteries To develop more
economical batteries
for cars, and to
develop residential
power storage systems
that will enable a move
to solar, thereby
helping move the
world to renewable
energy.
Opportunities:
If more automakers introduce electric vehicles, there will be large demand for batteries for
cars.
There is currently no dominant player in residential energy storage batteries.
Manufacturing the batteries can help Tesla acquire the experience and knowledge it needs to
improve the batteries.
Challenges:
There are large, mature battery manufacturers already.
It is difficult to improve the cost structure of Li io n batteries – it may require a radical
innovation.
Automakers competing with Tesla may not want to buy batteries from Tesla.
Right now residential energy storage is not a mass market so it may be hard to achieve scale
advantages.
Battery production may distract Tesla from auto production and uses significant capital.
Solar Panels To bring better solar
options to the mass
market to facilitate
moving the world to
renewable energy.
Opportunities:
There may be significant demand from the mass market if econom ical and attractive solar
options can be developed.
Solar panels may be synergistic with Tesla’s residential energy storage solutions.
Challenges:
Producing solar panels requires very different expertise than producing cars or batteries.
Chinese companies are major players in solar panels and may compete heavily on price.
Much technological development may be required to make solar panels a feasible option for
the mass market.
Manufacturing solar panels may distract Tesla from auto and battery production and uses
significant capital.

area

Motive

Opportunities/Challenges

Mass market cars

To help bring the mass market to renewable energy; to build economies of scale in production and procurement

Opportunities:
The mass market is large and there is no electric vehicle accounting for a large portion of it
Challenges:
The mass market is fiercely competitive, and the mass market tends to be quite price sensitive which is going to be difficult address with an electric vehicle since battery costs are high.
Tesla (and Musk) lack experience in large-scale auto assembly.
If they are successful, they will be imitated which will put more pressure on the price.

Batteries

To develop more economical batteries for cars, and to develop residential power storage systems that will enable a move to solar, thereby helping move the world to renewable energy.

Opportunities:
If more automakers introduce electric vehicles, there will be large demand for batteries for cars.
There is currently no dominant player in residential energy storage batteries.
Manufacturing the batteries can help Tesla acquire the experience and knowledge it needs to improve the batteries.
Challenges:
There are large, mature battery manufacturers already.
It is difficult to improve the cost structure of Li ion batteries – it may require a radical innovation.
Automakers competing with Tesla may not want to buy batteries from Tesla.
Right now residential energy storage is not a mass market so it may be hard to achieve scale advantages.
Battery production may distract Tesla from auto production and uses significant capital.

Solar Panels

To bring better solar options to the mass market to facilitate moving the world to renewable energy.

Opportunities:
There may be significant demand from the mass market if economical and attractive solar options can be developed.
Solar panels may be synergistic with Tesla’s residential energy storage solutions.
Challenges:
Producing solar panels requires very different expertise than producing cars or batteries.
Chinese companies are major players in solar panels and may compete heavily on price.
Much technological development may be required to make solar panels a feasible option for the mass market.
Manufacturing solar panels may distract Tesla from auto and battery production and uses significant capital.