An Analysis of Strengths and Weaknesses of Elon Musk’s Tesla Structure

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An Analysis of Strengths and Weaknesses of Elon Musk’s Tesla Structure

Introduction

Tesla, formerly known as Tesla Motors, is an American automotive company specializing in manufacturing electric cars, automotive engines, and solar panels. Tesla was founded in 2003 by Martin Eberhard and Marc Tarpenning, who was later joined by Elon Musk, who serves as a present Chairman and Chief Executive officer of Tesla. Tesla owns multiple production and assembly units wide across the World, primarily operated from Fremont, California.

Body

Tesla’s Organizational Structure

As explained by Elon Musk, the CEO, in the “Master Plan, Part Deux” memo released in 2017, the official aim and objective of Tesla is to:

Generate demand and drive sales up for TESLA Motor’s electric car
Build long-term brand awareness and manage corporate reputation
Manage TESLA’s existing customer base to create loyalty and customer referrals
Make its car completely Autonomous and affordable to most customer base
Educate consumers about TESLA’s goals to improve the future
Start the production of Model 3 and increase the waiting list for Model S and Model X from 10,000 to 20,000 cars

Looking into the organizational Structure of Tesla, Tesla follows a traditional form of corporate structure to control the managerial workflow of the organization. Tesla has a functional or U-form organization structure that considers organizational structure as its defining characteristic. Key characteristics of Tesla’s Organisation structure are

Function-Based Hierarchy – Tesla, as an organization, forms groups or departments based on its business function. This feature helps to maintain strict managerial control of the organization.

Centralization – Tesla uses centralization to maintain uniformity and manage control over the entire organization through a central group. Divisions – Tesla uses divisional categorization such as Geography, financial margins, and automotive and technology demarcation to implement and customize strategies.

Tesla’s Organizational Culture

Talking about the appropriateness of Tesla’s structure and how it supports and facilitates the achievement of its objectives, we have to contemplate the pros and Cons of the current organizational structure with reference to its improvement from the past. The positive side of following a functional form of organizational structure is that it highly influences accountability, information access, and decision-making activities with the organization making workflow processes centralized and hierarchy based. The lower side of Tesla’s corporate-based organizational structure is that it poses limitations on:

Operational expansion in the global market
Ability to implement new strategies
Manage its operational activities and leadership effectiveness.
Empowers rigidity and adaptability due to global centralization
Highly centralized, leading to Anchor Bureaucracy

To address this disadvantage, it is recommended that Tesla reform its organizational structure to increase the level of autonomy and transparency. A corporate structure with a higher degree of decentralization tends to be more effective in creating competitiveness. Well, in the past, Tesla and Elon, as the Chief Executive Officers, have considered many strategy management approaches to re-organize and de-centralize to adapt to the changing business environment.

Some of them worth mentioning are as follows:

1. Flattening its Management structure:

In a memo released on May 14, 2018, Chief Executive Elon Musk told company employees in a memo that Tesla is implementing “a thorough reorganization of our company” that includes a “flattening of the management structure” to streamline its executive operations, improve communication, combining functions that are successful and trimming activities that are not vital. The memo states:

“To ensure that Tesla is well prepared for the future, we have been undertaking a thorough reorganization of our Company. As part of the reorg, we are flattening the management structure to improve communication, combining functions where sensible, and trimming activities that are not vital to the success of our mission.

To be clear, we will continue to hire rapidly in critical hourly and salaried positions to support the Model 3 production ramp and future product development.
Thanks,
Elon”

2. Consideration of going private:

As of 7th August 2018, Elon Musk stated, ‘I am considering taking Tesla private at $420. Funding secured.’ on Tesla’s blog. Elaborating on that, Elon quoted that Tesla’s status as a public company puts enormous pressure on the Company to make decisions that may be right for a given quarter but not necessarily right for the Company’s long-term growth, so we would look forward to considering going private.

However, on Aug 24th, 2018, Tesla CEO Elon Musk announced that he is no longer seeking to take his electric-car Company private after indicating that both he and the Tesla Board of Directors had made the decision for the Company to remain traded on the public stock markets, which concluded what had been weeks of speculation about Tesla going Private.

Compatibility between Structure and Culture

Tesla’s culture represents the Human side of the organization, which supports the creation of human resources necessary for the delivery of innovative products in the global automotive industry. Tesla’s organizational culture values workers’ behavior and decision, which directly impacts the competence of the Company.

Overall, Tesla follows an innovative and problem-solving type of culture that motivates and encourages employees to develop new ideas and solutions which can profit the Company to facilitate the accomplishment of the Company’s goals. The development of innovative products and making them happen through its human resource is the ultimate motto of Tesla’s organizational culture. Key features or sub-cultures of Tesla’s organizational culture are as follows.

Move Fast – Tesla’s corporate culture facilitates business resilience through speedy responses to current issues and challenges in the global automotive industry. In this regard, Tesla emphasizes employee capability to respond rapidly to changing market trends and requirements.

Do the Impossible – Tesla’s corporate culture encourages employees to think out of the box and go beyond conventional methods to bring in new ideas that support the Company’s Innovation.

Constantly Innovate – Tesla believes in and emphasizes Innovation as their main priority. This feature of the organizational culture focuses on the continuous nature of Innovation at the Company.

Reason from “First Principles.” – Tesla promotes problem solving and reasoning as a special mode of inquiry. In this regard, Tesla roots factors to understand and solve problems in the real World.

Think Like Owners – Tesla’s culture motivates employees to develop a mindset that makes them think that they own the organization. This mindset can support business development, corporate vision, and mission statements making employees take responsibility and accountability in their jobs and in the overall performance of the multinational business. We are ALL IN – To improve synergy within groups, Tesla encourages the participation of all employees into teams observing teamwork as a unifying aspect of company culture.

Talking about the appropriateness of Tesla’s culture, it is certain that the Culture is driven by Innovation and works closely to achieve the Company’s objective. The positive side of such a culture is that it helps organizations to design and develop innovative products that are based on high-end technology and competent over market competitors. However, seeing, from an employee perspective, there could be immense pressure and responsibility to be innovative and stable to bring new ideas to the table.

This culture of the Company can also exploit employees’ intelligence and expertise until they are useful to the Company and let them down after usage. Chances are that committed employees can be taken as a luxury than a necessity. A total lack of stewardship is another factor to consider. Are the structure and culture compatible? Do they reinforce and complement each other?

Strengths and Weaknesses of Tesla’s Leadership

After thorough analysis and contemplation of all pros and cons of Tesla’s Organisational Structure and Culture, I see that there is a huge business gap that has to be addressed to facilitate the achievement of the Company’s objective. Here are some of my observations to support the opinion that the structure and culture of Tesla are not compatible with nor complement each other.

Tesla follows a centralized corporate structure that considers the CEO as the sole decision-making body. This principle inversely conflicts with their We are ALL IN subculture, which claims to include all employees in bringing Innovation to the Company. This draws an eye to the authenticity and effectiveness of Tesla’s culture and its impact on the structure. Tesla’s structure is function-based and constantly demands Innovation from the employee end. This could sometimes not consider employee socialization, the so-claimed relationship-building Cultural attribute of Tesla.

With recent developments happening in the Company’s structure (Going private, Request for more subsidiaries, Urgency to release Model 3), it is lucid that Tesla is running on a weak culture with no real vision or expected value return for performance.

2. Analyze Tesla’s leadership

Discuss the strengths and weaknesses of Tesla’s leadership. Although Elon Musk is clearly relevant, don’t focus exclusively on him.

Despite being the youngest automotive Company compared to its market competitors, Tesla has succeeded in coming out as an innovative company with enormous strength that is profiting from the sustainability of the Company in the longer run. However, its greatest strength could be its biggest liability too. Though Tesla’s leadership has shifted the auto industry to manufacturing highly ambitious products, it has equally suffered to keep up the value due to its unthought leadership decisions.

A closer look at Tesla’s stock in the market portrays a different story insisting that the situation is not all black and white as it is said to be. So in order to better understand the internal strategic factors with respect to leadership management and its impact on the competitiveness of Tesla, here is a look at the strengths and weaknesses of Tesla’s leadership.

Strengths:

Transformational: Undoubtedly, Tesla is best known for its out of box thinking and innovative product lines, which makes the Company unique from its competitors since day one. Innovation serves as a primary backbone of Tesla, which plays a great part in contributing to organizational business growth and improvement. The behind-the-scenes executives are the ones to be appreciated for this accomplishment. Introducing World’s first fully electric sports car, Building its most recent Model 3 most affordable electric car of the era are some honorable mentions.

Control over execution and Production – Despite the challenges in expanding the business and failing to deliver the targets on time, Tesla’s leadership has remained committed to executing its innovative and ambitious ideas into actions for the future. The solid visualization combined with internal strategic management has helped Tesla be where it is right now.

Negative Power and Influence

Authoritative: As known by now, Tesla follows a centralized structure with top executives being the decision-making body, which makes Tesla Bureaucratic. Tesla’s leadership has failed to take Tesla global; in terms of the Business marketplace, Tesla suffers limited market presence, which restricts the Company from global expansion and overseas stability. Going by stocks, Tesla seems to concentrate its production mostly in the United States (due to high demand rates, value for price acceptance, and supply chain activities), which has made it hard for the Company to expand in the international market.

Poor predictability and focus on profits: With continued efforts to expand and come up as the most combat innovative automotive company, Tesla’s management has spent a significant amount of cash in Research and development trying to transform its car models. This has left the Company with a high load of debts marking only 4 billion in sales after an investment of 200 million for production. Also, CEO Elon’s decision to go private to save subsidiaries has raised high-level questions proving Tesla’s leadership fails in terms of the Company’s focus on turning profits into stocks.

Conclusion

Though power differentials remain high in Tesla, Elon Musk, the current CEO and chairman of Tesla, remains relevant to the topic in influencing the power play within the Company. In recent months Elon’s impulsive behavior and personal meltdown have taken a great toll on the Company’s reputation and stock prices. ‘I think the allure of Tesla, and the danger of Tesla, is Elon Musk,’ Damodaran said. ‘ The idea of announcing that he had “funding secured” for a go-private takeover of his Company and then reversing it in 17 days is just beyond the pale, which ultimately slammed the Company’s stocks within these 17 days. Poor decision-making, pressuring employees for Innovation, and improper social communication all at once sabotage Company’s internal environment resulting in greater fallback.

References

“Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future” by Ashlee Vance
“Tesla: Inventor of the Electrical Age” by W. Bernard Carlson
“The Innovation Stack: Building an Unbeatable Business One Crazy Idea at a Time” by Jim McKelvey