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Introduction
Business environments are described or analysed in various ways based on disparate important dimensions. However, the concept of turbulence is ambiguous. This confusion touches on the varying orientations in studying organisational environments and the diverse methods that are used to measure it.
This paper will define environmental turbulence and give its three major dimensions. The paper will consider a case study of Tesla with specific emphasis on the types and sizes of batteries used in the company’s electric cars. Tesla innovation will be discussed by considering how it has dealt with turbulence.
Definition of environmental turbulence
Environmental turbulence underscores the extent of change and degree of complexity in a business environment. Changes in technology, statutory regulations, or environmental factors are some of the examples that constitute environmental turbulence (Carman, 2003).
Therefore, a turbulent environment is dynamic, expanding, unpredictable, and fluctuating. In addition, such an environment displays high levels of interconnectedness with the business. Turbulence is a complex interaction of several dimensions that are related to change where some elements dominate others or overlap each other at times (Grant, 2003).
The figure below shows the configuration of the main dimensions of environmental turbulence.
Fig: 1 – Dimensions of environmental turbulence.
Dynamism
If the components of the tasks of the environment are highly variable, the business needs to be flexible. Dynamism in this case refers to the extent to which the components of the environment of a business unit remain constant or changing over a given period. Consequently, this dimension varies from static to dynamic.
For instance, a dynamic environment may be defined by technological changes, varying customer preferences, and frequent entrance and withdrawal of competitors (Mason, 2007). In environmental dynamism, the frequency of environmental change is not differentiated from the intensity of the changes. However, changes in the business environment can occur very fast, but with low intensity.
A good example of this scenario is how demand sometimes fluctuates on a daily basis. Similarly, there can be substantial changes happening with less frequency. From this description, the dynamism dimension of environmental turbulence has frequency and intensity of changes as its two sub-dimensions.
Complexity
The complexity of an organisation’s environment is subject to the number of elements in that particular environment. The environment has a large number of elements that are involved in its complexity (Rigby, 2001). The complexity dimension applies well to the organisations with a sizeable range of special products, which receive various types of clients and have markets spread over wide geographic areas.
The interaction of the environmental elements leads to environmental complexity (Mason, 2007). In a case where the environmental components have few interdependencies (interaction), it is easy to subdivide them into homogeneous groups.
As an example, a business that has varied clients, like domestic consumers, industrial, or governmental clients, could segment them into distinct groups. This aspect reduces the complexity of handling the clients. However, segmentation is not possible if there is a strong relationship amongst the many business environmental elements (Quist, 2009).
Therefore, the environment is very complex. Therefore, the complexity of the organisational environment depends on the number of elements involved coupled with how they are related.
Predictability
Predictability or uncertainty covers the two dimensions discussed above. The business environment can be very dynamic and complex, but predictable at the same time. Unpredictability reflects the “degree to which the relationships between the cause and effect concerning the environmental elements are incomplete” (Carman, 2003, p. 91).
When the variability of the environmental elements is linear or cyclical, this dimension can help the management to predict future developments by extrapolating the available trends. Nevertheless, in many business environments, data regarding future developments is not clear. The data available might show discontinuities in business trends, but fail to show when these will occur and in what direction.
This aspect might force the management to ignore certain data, which may be relevant. Therefore, such an environment is relatively unpredictable (Danneels & Sethi, 2011). In such unpredictable environments or where data is unavailable, the management has to be flexible. The predictability dimension has two sub-dimensions, viz. predictability and the availability of information about the changes in the environment.
Case Study
This paper is going to take a case study of the storage battery industry, which has the potential of becoming a multi-billion dollar industry. Innovations in this industry could help customers in times of power outages and as alternative power sources during peak hours.
The greatest challenge facing this industry is the pricing of the batteries and making a scalable package (Collantes & Sperling, 2008). The demand for these batteries depends on the market coverage and statutory regulations. For instance, these batteries could form alternatives to solar panel users who can sell excess kilowatts to their local grids.
In some markets, utility providers try to push back extra surcharges, thus causing resistance to users. These storage batteries could succeed in markets experiencing high prices in energy. The highest adoption of storage batteries is expected among large commercial buildings and the residential sector.
The large commercial buildings suffer from the demand charge that is levied by power generating companies, which charge proportionally to their peak consumption. For these users, the batteries could help them because they can be charged during off-peak and be used during the peak. This move could help them to earn incentives from demand response programs offered by utilities.
An example of demand-response program participants is the University of Pennsylvania. When electricity prices increase, the regional transmission operator calls to inform the university. The University responds by switching off heavy energy devices like chillers. Therefore, batteries are a good alternative to respond to energy spikes. Battery technology could bring a paradigm shift in how people think of energy.
In response to this emerging opportunity, several battery manufacturers are forming joint ventures in a move to come up with a lithium-ion battery technology. There have been advances in this direction, which has reduced the cost/kilowatt hour from $1850 in 1999 to $500 in 2006.The industry players expect that with the technological and manufacturing improvements, highly compact models will be produced to cover various markets.
The increased optimism about the future of storage batteries has attracted many start-ups in the battery manufacturing industry with expanding variety of lithium ion technology. However, as the future uptake of batteries for storage is not very clear, as manufacturers are not aware of the capacity levels. Therefore, the future success of the industry remains a function of the resulting interplay amongst the dynamics in the battery industry (Sierzchulaa, Bakkerb, Maatb & Weea, 2012).
Using the models of environmental turbulence, the industry is summarised below
Tesla Innovation
Tesla has set up its research and development labs where it is developing batteries and recharging technology. Therefore, Tesla has an important edge in changing the environment of the storage battery industry. It has an innovative technology in battery making and recharging, which has given it a competitive advantage in manufacturing affordable batteries, which can recharge quickly.
This aspect is helping the company to lower its cost as opposed to the competitors. The following section highlights how Tesla has dealt with environmental turbulence. Tesla has manufactured the Powerwall Brand batteries that cost $3000 for 7KwHr and $3500 for 10KwHr. These batteries are designed for use as power backups when there are power cuts in residential setups.
This brand is also suitable for commercial buildings as an alternative source of power, which underscores how Tesla deals with the aspect of dynamism. Consequently, the highest adoption of storage batteries is expected among large commercial buildings and residential sector.
The large commercial buildings suffer from the demand charge that is levied by power generating companies, which charge proportionally to their peak consumption. For these users, the batteries could help them because they can be charged during off-peak and be used during the peak. This move could help them earn incentives from demand response programs offered by utilities.
The Tesla’s Powerwall brand is a compact battery as compared to the ordinary batteries. In a bid to deal with complexity, the company is using lithium-ion batteries, which are the size of AA batteries. The new battery has a reduced cost/kilowatt hour. By choosing these cylindrical cells, Tesla saves on production costs.
The company also uses the most energy dense materials because the smaller and compact cells are safer. This move towards energy density means that Tesla wires together many separate cells, as opposed to hundreds of large cells. Another innovative product in this category is their cooling liquid that flows between the cells, thus cooling them so that a problem in one cell does not affect the rest.
Competitors are watching what Tesla is doing and moving fast to keep pace. On predictability, Tesla knows that these changes towards a safe environment will undoubtedly be the way forward in the industry, and thus it has positioned itself optimally to be the market leader.
Conclusion and implications
Environmental turbulence has three dimensions. Dynamism refers to the extent to which the components of a business unit environment remain constant or changing over time. The environment that has a large number of elements involved becomes more complex. The business environment can be very dynamic and complex, but at the same time, predictable.
From the case study, some organisational environment elements are causing turbulence in the storage battery industry. These elements include technology, governmental regulations, and customer preferences. Technology is changing continuously. For instance, Tesla is using energy-density lithium ion cells.
This aspect means that it uses thousands of small cells as opposed to other automakers who are using hundreds of large batteries. Governments are promoting storage batteries by offering incentives that encourage entrants into the battery manufacturing. The interaction of these environment factors creates a complex business environment.
However, the future uptake of batteries as storage options is not very clear. The success in the future remains a function of the resulting interplay amongst the dynamics in the battery industry. Tesla is moving very fast with innovations in battery manufacturing, and this aspect could affect other industries such as electric cars. Tesla has reduced the size of batteries by using energy density materials.
The success of the Tesla’s innovations on batteries could affect the electric car industry and energy storage in residential and commercial buildings. The greatest implication is that the electric car industry could become more practical. This assertion holds because as per the Tesla’s plans, there will be recharge stations nationwide delivering up to 256 miles in thirty minutes.
As other competitors are watching, there could be an emergence of other technologies from competitors, thus sparking a fast growth of the industry. There could be also diversification to other market segments such as energy storage in residential and commercial buildings.
References
Carman, R. (2003). The Relationship among Environmental Turbulence, Strategic Behaviour, Competitive Posture, and Performance: The Case of State and Federally Chartered Credit Unions. San Diego, CA: Alliant International University Press.
Collantes, G., & Sperling, D. (2008). The origin of California’s zero emission vehicle mandate. Transportation Research Part A: Policy and Practice, 42(10), 1302-13.
Danneels, E., & Sethi, R. (2011). New Product Exploration under Environmental Turbulence. Organisation Science, 22(4), 1026-1039.
Grant, R. (2003). Strategic planning in a turbulent environment. Strategic Management Journal, 24(6), 491-517.
Mason, R. (2007). The external environment’s effect on management and strategy: A complexity theory approach. Management Decision, 45(1), 10 – 28.
Quist, A. (2009). Credible Leader for Turbulent Times: Examining the Qualities necessary for leading into the future. Journal of Strategic Leadership, 2(1), 1-12.
Rigby, D. (2001). Situational strategies: A management tool for turbulent times. Strategy & Leadership, 29(6), 8 – 12.
Sierzchulaa, W., Bakkerb, S., Maatb, K., & Weea, B. (2012). The competitive environment of electric vehicles: An analysis of prototype and production models. Environmental Innovation and Societal Transitions, 2(1) 49– 65.
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