Tesla Motors Company’s Innovation Management

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Introduction

Tesla is an American-based automobile maker well-known for its production of exceptional electric cars. The company has its headquarters located in Palo Alto, and its product offerings include battery-operated vehicles, cordless energy storage, and solar panels (Teece, 2018). Since its inception in 2003, the company is regarded as one of the most successful firms in the automotive sector, having revolutionized its state-of-the-art manufacture of high-quality products (Perkins & Murmann, 2018). Tesla’s innovative approach has resulted in the exceptional incorporation of in-car hardware and software integration. Since most automobile firms have not yet incorporated cutting-edge technologies, the American organization has enjoyed the benefits of unleashing Artificial Intelligence’s potential with the implementation of auto-pilot features in Tesla car models. According to Forbes, the American conglomerate is considered one of the leading innovative corporations precisely because of its Model 3, which had an impressive score of 8.8 out of 10 (Thomas & Maine, 2019). This paper explores the significant aspects of Tesla’s innovation, and discusses the factors that have influenced it and the outcomes of this technological process.

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4Ps (Product, Process, Paradigm, and Position) Framework

Innovation can be evaluated based on four significant aspects of the 4Ps model. This theoretical framework classifies innovation into various categories and how they are related. For example, product innovation involves the process of introducing new products or improving their current features, quality, and performance. In contrast, process innovation incorporates the technological resources and capabilities which an organization can utilize to support its product strategies (Jones & Olken, 2005). Tesla’s innovative approaches can primarily be classified as product-oriented. The company has introduced unique products in the automobile sector, accompanied by exceptional product features. For example, its automobile vehicles are primarily powered by rechargeable batteries, making them energy-efficient and contributing to the fight against carbon footprint. Moreover, with the introduction of charging stations, consumers can eliminate the need for gasoline. In essence, Tesla’s product innovation has been significantly supported by its process innovation.

Tesla’s process innovation involves several significant aspects. For example, the company has utilized its cutting-edge technologies to improve its product by incorporating exceptional features. With its autopilot features accompanied by its adaptive cruise control and autosteer functionality, drivers can effortlessly maneuver on the road. Its recent characteristics, such as traffic light and stop sign recognition, have become breathtaking modifications that could enable autopilot to be globally recognized and one day become a significant milestone in the automobile industry (Endsley, 2017). While the smart summon feature might attract attention, it is considered a glimpse into the future of self-driving cars.

Another significant aspect of Tesla’s process innovation that has inspired its product strategy is its automatic software updates. Although the company constantly sends updates to its consumers, these upgrades come with improvements to the vehicle itself. For example, video streaming, simulation games, and security features have been incorporated into Tesla car software. In essence, these modifications have resulted in improved performance, such as a 5% increase in the functioning of Model 3 accompanied by a “Cheetah Stance” for Model X (Perkins & Murmann, 2018). In addition, sentry mode features added by the company utilize the car’s cameras to detect intruders, thereby increasing the security of the vehicle. In particular, Tesla’s process innovation strategies have significantly improved the performance of its products over time.

According to the innovation matrix framework, Tesla can be classified as a sustaining innovation. As the automobile industry has gradually started to notice the significant impact of Tesla, the somewhat academic discussion about the type of invention the American company does possess has intensified (Liu & Meng, 2017). The electric carmaker is frequently deemed a disruptive innovation by the current automobile manufacturers. However, the late American economist and business consultant who pioneered the theory of disruptive innovation, Clayton Christensen, argued that Tesla does not have the primary characteristics of a disruptive model but rather an incremental innovation (Davila et al., 2012). Regardless of this academic information, most of these opinions are valid to some extent.

Reflecting on the core concept of Tesla, both its electric and lithium-ion batteries have been around. Although these technological resources have been present, the company has played a vital role in refining them; hence the innovation has been incremental in nature (Chen & Perez, 2018). In contrast, managers can argue that the way the American brand has assembled these innovations and continuously and rapidly improved them to challenge and outperform internal combustion engines in motor vehicles is certainly radical innovation (Habib et al., 2020). Moreover, its comprehensive self-driving technology does not have the potential to develop into a disruptive innovation for many aspects of the automobile sector. From a customer’s perspective, Tesla is undoubtedly a sustaining innovation since it competes in the high-end industry utilizing the same value drivers as its rivals, such as safety, performance, and luxury (Tidd & Bessant, 2020). In essence, Tesla has remained the center of innovation as compared to other automobile manufacturers.

Initiation of Tesla’s Innovation

The origin of Tesla’s innovation is attributed to the world’s renowned businessperson and Chief Executive Officer (CEO) Elon Musk. He is one of the most successful entrepreneurs who manage Tesla Motors and other companies such as SpaceX and the Boring Company. Therefore, the creation of Tesla’s innovative approaches in the automobile sector can be explained by Kirzner’s entrepreneurial alertness model (Sharma, 2019). According to this model, Musk is portrayed as an industrialist who not only has talent, expertise, and resources but has the ability to identify market gaps and opportunities that result in profitability. In particular, Musk discovered the insufficiency of electric cars in the automobile industry and developed Tesla’s ground-breaking innovative strategies for refining the concept of electric vehicles (Perkins & Murmann, 2018). Moreover, Tesla’s drive for innovation was also facilitated by the increasing pressure from governmental agencies and other bodies advocating for car makers to adopt electric energy over gasoline. In essence, various economists have also analyzed the concept of innovation in the organization.

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Joseph Schumpeter developed various theories to explain the concept of innovation in organizations. He argued that innovative corporations are able to create competitive advantages resulting in a long-term monopoly, which generates profits in the long term (Davila et al., 2012). In the case of the automobile industry, Tesla is regarded as the leading electric car maker and the first firm to create an exceptional electric vehicle design. Moreover, the car company has diversified its product portfolio by specializing in solar panel development for use in enterprises and homes.

Musk developed his entrepreneurial ideas from the concept of car batteries. Since the car industry has also produced these products at a high price, the CEO of Tesla adopted a different approach which involved dismantling the battery packs down to their parts to examine the case (Teece, 2018). His idea was to manufacture car batteries at a relatively lower price than what was being offered in the industry. Moreover, he also assessed the market price of nickel, steel, aluminum, and carbon and realized that these elements’ total cost was about $80 per kilowatt-hour (Teece, 2018). By acquiring the essential parts of a battery pack and combining them in a new way, Musk was able to develop a new battery.

Factors that Influenced the Development of the Innovation

Today, there are several factors that influence the development of an innovative product or process in an organization. A firm’s incentives to innovate are being impacted by several external drivers emanating from the company’s outside business landscape. These factors include the labor market, competitive and economic conditions in the market, the supply of technological resources and capabilities, and the customers, rivals, and suppliers’ activities (Bell et al., 2019). Tesla’s concept of refining the existing electric car models has a rich origin that encountered several challenges.

Elements of the Ecosystem

One of the main factors associated with Tesla’s approaches to innovation revolves around the personality traits of its current CEO, Elon Musk. Creative individuals can be differentiated in terms of their cognitive abilities, motives, and personalities (Hassi, 2019). Considering that there are stereotypical creative people, they exhibit various personalities and are also motivated by different factors. Elon Musk’s character can be described as intuitive. It suggests that he indirectly observes the world through patterns and impressions that exist in his mind rather than perceiving society through his sense (Hassi, 2019). For example, if Musk were a sensor, he would have either become a professional athlete, employee, or even a skilled accountant. In particular, Tesla’s CEO would have developed some interest in physical activities. Since his early childhood days, he has always been enthusiastic about books and seeking higher learning (Teece, 2018). Generally, an intuitive person is fond of physics because it fulfills the needs of their intuition. Musk’s passion for establishing electric and self-driving vehicles, developing hyperloop, and Neuralink Company gives a clear picture of his imagination and innovation, which sensors lack.

Elon Musk has also exhibited the characteristics of a thinker. The latter is a person who makes decisions based on rational thought rather than emotions. Thinking has been a visible characteristic of Tesla’s CEO. Moreover, he is a spontaneous and fast thinker, which makes him able to gain insight into almost everything he encounters in his field (Perkins & Murmann, 2018). For example, Musk has a comprehensive and scientific knowledge of cars, artificial intelligence, and space shuttles.

Sources of the Tesla’s Idea

Several factors influenced the foundation, development, and growth of Tesla’s innovative approaches. For example, drivers of innovation for the American automotive maker are both individual and team-based strategies. In particular, in its team-based approaches, its human resources have played a vital role in driving its innovative projects. In 2010, the leading electric car maker’s employees were approximately 899 (Teece, 2018). However, by 2016, the firm has already hired more than 13,000 staff workers (Teece, 2018). In addition, the business was searching for possible talents to help it develop its auto-pilot functionality. In essence, the team-based approach has played a vital role in developing Tesla’s product and process innovation.

Based on an individual level, the key driving factor that led to the growth and development of the American company is the leadership and management of Elon Musk. The latter has led his staff workers by inculcating innovative problem-solving skills to allow every employee to develop their creative thinking capacity (Perkins & Murmann, 2018). He also allows his workers to share ideas freely, generating innovation in the organization. Moreover, he balances the leadership team to create a collaborative working environment. In essence, both the individual and team factors have played an imperative role in enabling Tesla to become one of the world’s leading electric car makers.

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How the Innovation was Managed

Tesla has always been an organization that creates an environment promoting corporate entrepreneurship. Therefore, innovation management refers to the process of handling all the activities required to introduce a new product or improve and develop the features of an existing idea. In particular, Elon Musk and the team incorporate several processes and structures to manage the company’s ground-breaking ideas effectively. For example, the automobile manufacturer’s organizational structure is a centralized model accompanied by a functional-based hierarchy (Perkins & Murmann, 2018). It has a structural team of employees for engineering, sales and service, and other divisions to make the process of innovation management easier. Its functional-based chain of command is its most significant characteristic that promotes its innovative approaches. This model incorporates functional groups that supervise local and global operations. It comprises the chairman and CEO, technology, global sales and service, finance, and legal departments. Figure 1 below illustrates the chain of command of the American automotive company, Tesla.

Corporate Structure of Tesla
Figure 1. Corporate Structure of Tesla

The company uses centralization to manage the significant aspects of its organization. This process allows Elon Musk to exercise his managerial control over the entire company. Another important aspect of its corporate structure that drives its innovative approaches is its divisional components. The automobile firm focuses on geographical subsidiaries, which is used to incorporate various techniques and marketing campaigns. Its primary divisions include automotive and energy generation and storage.

Tesla’s Organizational Strategy for Innovation

Tesla has emerged as one of the most successful electric car makers in the world. Its innovative strategy aims to change the automobile industry and offer long lessons for any aspiring entrepreneur, especially in terms of getting assistance for the idea and introducing new technologies to the market. Tesla’s innovative approaches involve two significant areas of its organizational operation. For example, it involves sensational headlines, such as the introduction of Cybertruck or Roadster 2.0 and the primary investments in its car models such as S, X, Y, and 3 (Endsley, 2017). These endeavors are targeted at accomplishing various goals such as acquiring resources for profit-making and actual monetization of ideas. In essence, they are integrated to reach the primary goal of bringing new innovation to the industry.

Organizational Conditions that Fostered or Hindered its Development

In Tesla’s years of development, there are several conditions that have facilitated the development of its innovative ideas. For example, its operating model has consistently reinforced its business model. The latter was developed to design and make exceptional automobiles while increasing the adoption of electric motors and the surrounding infrastructure (Chen & Perez, 2018). The model was executed in three phases represented by Model S/X, Model III, and Roadster (Endsley, 2017). From the perspective of product development, Tesla’s operating framework has unmatched vertical integration when compared to its rivals. The company has successfully built charging facilities throughout the United States and other sections of the world. In essence, its operating model has enabled it to realize success from its disruptive business model.

Outcomes of the Innovation Process

The outcome of Tesla’s innovative approaches can be seen in its financial performance and its market share in the industry. Tesla’s research and development expenses increased to $1.5billion while it recorded approximately $31.5 billion in revenue in 2020 (Chen & Perez, 2018). Moreover, the company owns about 79% of the electric vehicle market in the United States (Endsley, 2017). As compared to its competitors, Tesla has a market share of approximately 55.09% in the international market, suggesting that its innovative projects have been successful in the long run (Chen & Perez, 2018). Therefore, the company has recorded exceptional performance as a result of innovative techniques.

Value capture is a vital aspect of commercialization, and it involves several steps. Tesla gains value by becoming the first mover in an effort to create a sustainable competitive advantage against automobile companies offering the customers gasoline-powered vehicles. Reflecting on the innovative approaches of Tesla, it has undoubtedly become the most successful car maker in the world. For example, by 2014, the California-based syndicate had already reached its peaks in sales revenue (Perkins & Murmann, 2018). Moreover, by May 2015, Tesla’s market capitalization was 31.3 billion United States dollars (Perkins & Murmann, 2018). In addition, the company’s corporate culture has played a vital role in driving its innovative processes.

Its organizational culture encourages its staff workers to search for remarkable solutions that differentiate the company from its core competitors. Moreover, its management empowers its workforce to innovate in a bid to strengthen continuous improvement of its commercial aspects. Tesla’s corporate structure enables it to maintain its human capital competencies for a continuous driver of growth in the international market for electric cars, batteries, and solar panels (Perkins & Murmann, 2018). In particular, the company’s management approaches have significantly created an environment that fosters corporate entrepreneurship.

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Conclusion

This paper has explored the imperative aspects of Tesla’s approaches to innovation. The company is an American-based automobile manufacturer which improved an existing idea to build its competitive advantage. While electric cars have been initially present in the automobile industry, Tesla primarily reinvented the way companies manufactured electric vehicles. The American giant introduced an innovative idea that is set to drive the automobile sector in the future. Self-driving cars incorporate several technologies such as artificial intelligence, sensors, and software control to maneuver around safely. Tesla’s innovative success is attributed to the managerial and entrepreneurial background of the world’s renowned tycoon, Elon Musk. The latter has played a vital role in incorporating an enabling culture for corporate entrepreneurship and strategic approaches, which has significantly helped Tesla to gain sustainable competitive advantages. Various discussions have surfaced, describing the American brand as a disruptive innovation, while others argue that it possesses incremental features of creativity. In essence, the company has exhibited both aspects of a radical and sustaining innovation.

References

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Chen, Y., & Perez, Y. (2018). Business model design: lessons learned from Tesla Motors. In Towards a Sustainable Economy (pp. 53-69). Springer, Cham. Web.

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Endsley, M. R. (2017) Autonomous driving systems: A preliminary naturalistic study of the Tesla Model S. Journal of Cognitive Engineering and Decision Making, 11(3), 225–238.

Habib, T., Kristiansen, J. N., Rana, M. B., & Ritala, P. (2020). Revisiting the role of modular innovation in technological radicalness and architectural change of products: The case of Tesla X and Roomba. Technovation, 98, 102163. Web.

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Perkins, G. and Murmann, J. P. (2018) What does the success of Tesla mean for the future dynamics in the global automobile sector? Management and Organization Review, 14(3), 471–480.

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Thomas, V. J. and Maine, E. (2019) Market entry strategies for electric vehicle start-ups in the automotive industry–Lessons from Tesla Motors. Journal of Cleaner Production, 235, 653–663.

Tidd, J., & Bessant, J. R. (2020). Managing innovation: integrating technological, market and organizational change. John Wiley & Sons.

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