Tesla: New Circumstances and New Leadership

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Introduction

Tesla is a company that advances the human understanding of technology. It is a unique composition of professionals who are passionate about their work. However, the company operates in a highly “volatile, uncertain, complex, and ambiguous” or so-called VUCA environment, which requires a continuous review of practices and strategies of corporate leadership (George 2018, para. 1). To ascertain whether the company is able to yield success under new circumstances, it is paramount to investigate into implications that the world events have for leadership and management of strategic change, evaluate Tesla’s change management capabilities, and make recommendations to overcome possible challenges.

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Present-Day VUCA Environment Components Demanding a Shift in Leadership

VUCA environment is a multifaceted entity the influence of which may be manifested in the key spheres of life that an organization and its leaders must be mindful of. Among those domains are politics, economy, and social issues and trends. In each of the domains, crucial changes happen almost every year, which requires constant adaptation and awareness on a global level. In the past couple of years, the world witnessed events that have had a huge impact on the business sphere and on Tesla company in particular. Each global issue that presently forms the VUCA environment contains an implication for leadership and strategic change management, and it is vital to review them in order to understand what skills, abilities, knowledge, and management methods a leader need to develop in order to bring the company to prosperity.

Political Issues

Business and Politics may seem like different fields of activity, but in fact, they are deeply intertwined. A political situation in the world and a country could have significant influences on a company’s priorities. The business climate is very much shaped by politicians who decide on the taxes, priority spheres, reforms, and regulation policies (Drutman 2015). There are numerous examples of politics interfering or completely reshaping business priorities and opportunities. As such, one can remember the 1920s Prohibition in the U.S. that fuelled custom underground brewery business. Such decision catalysed market, which small local businesses used in their favour.

The election of Donald Trump in 2016 has certain implications for changes in leadership and strategic management in Tesla. The current president’s style of governing America is certainly different from his predecessor, Obama. Since Trump is also a businessman, he may be loyal to the issues companies in the U.S. presently have. Among those issues are heavy taxes imposed on domestic profits and the repatriation of foreign ones. Concerning the latter, Trump has already made necessary changes in order to make the repatriation process easier. Thus the tax plummeted from as high as 35% to as low as 5% depending on the chosen scheme. Such reform is a massive incentive for U.S. companies to return their assets to the domestic region and develop additional business units. This requires the top-level leaders to develop solutions that will allow this process to run smoothly.

On the other hand, Trump is known for his strong allegiances with oil, gas, and coal mining corporations. The regulations for these types of activity mean a preference for traditional energy sources, which Tesla is currently competing with. Trump is a complex and often unpredictable politician, which makes his actions and intentions paramount to be considered and weighted from the standpoint of the company’s benefits and losses. To address such volatile and uncertain environment change ushered by the U.S. president, Tesla leaders should be extremely attentive to even minor changes.

The unprecedented and, to some extent, unexpected referendum results in Britain to set course for sole domestic and foreign policy parting ways with the EU also creates ground for business leaders to adjust their practice. To understand what implications such an event might have it is vital to look into the reasons it occurred. According to Dhingra et al. (2016), one of the reasons was the ease to access of foreign (and usually cheap) workforce to the labour market of the UK. This situation created an imbalance and made the native British skilled workforce fiercely compete for their jobs, which was not an outcome that satisfies the citizens.

Having left the EU, the United Kingdom may now formulate its own economic agenda and, as suggested by Ebell and Warren (2016), it may have a long-term influence on trade and tariffs for foreign companies. Since 2015, the UK has become one of the priority markets for Tesla in the EU, and with anticipated changes in the economic policy, the situation might change. However, in 2017, the United Kingdom announced its plans to reduce the production of petrol-fuelled cars and completely ban them in 2040 (BBC News 2017). This political decision could have a huge influence on Tesla as it is one of the main potential producers of substitute vehicles running on electricity. Given that, the management has a tremendously important task of rethinking its current strategies and leadership issues to be ideologically and structurally ready to enter a new kind of competition for the UK market.

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Another implication here is the rest of the EU countries who have just lost a major player. Currently, during the transitional period, relative stability is achieved in the region, but there could be concerns for the future as similar referendums may be held in other countries, especially, if in the long run, the UK will benefit from exiting. Tesla company leadership might be concerned in the sense that it would also be involved in building relationships with multiple countries anew, provided they would change their political stance as a result of new exits.

The perspective of nuclear war has again darkened the horizon for the first time since the cold war. Kim Jong-un announced that North Korean nuclear technologies had been successfully tested and ready to destroy any object within the transcontinental reach (the Guardian 2017). The US has answered with military exercises in the vicinity of North Korea, which the latter treats as an escalation of tension. This event once again demonstrates how unstable world peace could be and what possible disastrous changes a nuclear war could bring. Transnational company leaders may be involved in the process of mediating tensions through the use of social media, which requires new skills and an update on the company’s vision. The prospect of a disaster may also set in motion disaster-recovery plans. A leader needs to review the readiness of the company mechanisms to prevent insufferable losses and consider leadership strategies that would be most effective in such cases.

Economic Issues

The world economy is another part of the VUCA setting that a leader needs to be mindful of. Everyday invisible changes happen across the planet, and in the age of information technologies, it is vital not to lose sight of significant alterations. Any company is an economic agent that partakes in the process of shaping and changing the market. Its success depends in part on how well-informed the company leaders are and how well they manage human resources, tangible and intangible assets. Since Tesla is a global company, it has to be aware of the multitude of factors that could either benefit or harm the organization.

To illustrate the significance of economic implications for leadership and strategic management of Tesla company, the key business-related events such as China’s high credit growth. According to the International Monetary Fund analysts, China is threatened by an escalation of debt issue that is unmatched by real GDP increase (IMF 2016). They fear that such a pace is now fuelled only by extensive domestic demand and investment. Provided that the analysts’ assumptions about the misallocation of the corporate funds are true, the Chinese bubble could burst, which will have an immeasurable impact on the world economy (IMF 2016).

China is the largest supplier of rare-earth metals that are needed to produce most of the electronic equipment installed in Tesla. Breakage of supply lines threatens disruptions in the production facilities around the world as finding an equal substitute for this component is an extreme challenge. The destabilization of the Chinese economy might also impact Tesla’s plans to further extend its influence in the Asia-Pacific region. A rapid recession of one of the major trade partners of the U.S. might set off a chain reaction that would trigger another financial crisis similar to the one in 2008. A paralysis of financial institutions will definitely be a concern for a large organization such as Tesla. A strategic management implication here would be to work out failsafe mechanisms against such disasters. Leaders of the company might consider developing an alternative paradigm to operating in relatively peaceful conditions.

The evolution of payment methods and currencies and their recent gain in the strength of financial impact is also an event that requires close monitoring and precaution. Cryptocurrencies such as Bitcoin and Ethereum have recently skyrocketed in price against the U.S. dollar, which makes it an attractive investment and a valuable asset to have. Blockchain technology could change the world by producing bank-free transactions that could potentially speed up the pace of trade (Dombey 2017). Awareness of such possibilities and an attempt to explore this practice could be a crucial strategic management decision that could potentially be a pillar supporting the growth of Tesla. Such action requires a new and courageous type of leader that senses when the time is right for allocating resources for such a venture that in VUCA environment may be the catalyst for tremendous success.

Cybercrime has also become an issue of economics since the annual damage from the attacks launched by hackers is estimated at $400 billion globally (Arief et al. 2015). It has become an issue for large companies and states as the criminals now unite in enclaves and act for their own profit selling stolen data and disrupting the targets’ operations for payment. Being aware of this threat a new kind of leader must employ the most advanced strategies to protect the company from invasions and related damage. In addition, since Tesla cars are themselves electronic devices that are developed to become fully automatic in terms of driving, an issue of security becomes one of the primal concerns. Here the technological adaptability is not enough to survive in the aggressive VUCA environment. A new leader must be ahead of potential attackers both technologically and strategically.

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Social Issues

A world is inhabited by millions of people each of whom may one day become a customer of Tesla. In a highly volatile world of interests and desires, it is a leader’s task to develop a strategy that would allow increasing public interest in the company’s creations. Shaping a social tendency that allows channeling thoughts into buying Tesla products is an essential and advanced practice that might be needed to be ahead of the competitors.

One of the current trends that are highly influential in Europe, the United States, China, and other countries is a concern for the pollution of the Earth. Green solutions are sought around the world in an attempt to reduce the level of air, water, and soil contamination. By harnessing and fuelling these concerns, Tesla could gain thousands of potential clients. Informed and visionary leadership in this task is key.

However, if a few years ago an electric car or a solar panel was an exotic way to show one’s concern for nature, now it becomes a full-grown product for the mass customer. The sphere is already competitive, which means that customers have to make a choice from a range of products. Hence, they become pickier and more informed about the technology. In such circumstances, Tesla leaders have to invent creative ways to win over the attention and loyalty of the customer. There is no more need in elaborating that green technologies are good because most people are ready for making green solutions a part of their life. This situation implies that another strategy that would work in the highly competitive environment must be elaborated.

Society has become increasingly global, and even local scandals might affect the company’s reputation which immediately results in millions of losses through lawsuits. In such an environment Tesla public officials and leaders must develop a flawlessly non-offensive communication strategy in order to adapt to the new world where each person might find a second meaning in the company’s actions and words.

VUCA environment components demonstrated above are the implications of the fact that the old management strategies will not work. Those above-mentioned implications are but a small fraction of the challenges that make management and strategizing so complex.

Change Leadership Capacity in Tesla

Change leadership is the ability to manage and implement change in order to adapt to a changing environment (Hornstein, 2015). The capacity for such leadership can be measured through the effectiveness of the actions that are taken in each essential domain of the company’s activities and available human and other resources to perform change (Thorpe, 2016). Therefore, to evaluate the capacity of a company to change it is required to evaluate the flexibility of a company’s thinking in a multitude of domains. Among the key spheres of the company’s activity are planning, financial and resource management, HR management, communication, quality assurance, logistics, monitoring, and evaluation (Freeman and Siegfried 2015; Phillips et al. 2016; Thorpe, 2016). Since Tesla is all about cutting-edge technology, it is also vital to review its capacity to change management in the sphere of research and development.

Planning

When planning is concerned, Tesla seems to be ahead of its competitors. An essential component of planning is having a goal (Gong et al. 2017). According to Earlier Tesla plans voiced by its co-founder, Elon Musk, the company initially oriented on high-end customers and was making a sports car that was faster and more environmentally friendly (Musk 2006). However, he pointed out that the ultimate goal is to provide each family with an electric car and have all people in the world using renewable energy (Musk 2006). Change leadership in the planning department may be viewed as changing means and strategies in order to reach the goal.

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Tesla has always been proud of its unique style, cutting-edge technology, and fuel efficiency. They have been playing a key role in its advertising strategies. However, when the company understood that economizing on fuel alone could not attract modest customers and families, Tesla employed a range of different strategies including a well-known and extensively used strategy of selling different trim levels and selling used cars at affordable prices. Thus, being able to change without losing sight of the final goal could be a Tesla company’s advantage.

HR Management

People at Tesla have always been the most valuable assets. However, Tesla does not always manage to ensure harassment-free conditions for its employees. There have recent allegations of LGBT threats that implicated a manager bullying his gay employee (Levin 2017). For two years, various workers filed suits against Tesla implicating the company is violating the labor legislation by forcing employees to work longer hours, silencing bad conditions, abuse, and other illegal and immoral activities (Levin 2017). So far the company only manages to express concern, while no real response has been produced for two years since the first claim. Change management in the human resources department clearly needs revision.

Communication

Assessing change management capabilities in the domain of communication requires reviewing communication strategies targeting customers, employees, and employee-manager feedback. Customers are reached through a number of communication channels: a website that allows purchasing products, mobile applications that shows available charging stations, a blog with corporate news, social media, and telephone outreach. The information about the company’s products is easily accessible and understandable. Tesla Motors has 95 service and sales centers across the world, which helps its brand to be recognizable worldwide and encourages the use of word-to-mouth marketing. The all-around network of communication that Tesla built over the years serves as an excellent ground for change. The resources to foster that change can be found in managers of the sales department who show and outstanding performance judging by the growing number of sold cars.

Communication with employees leaves much to be desired. The above-mentioned scandals with employees reveal either the absence of sound communication practices or the inability of the senior staff to exercise them properly. The fact that the situation is still unresolved and new complaints and lawsuits are filed, the company lacks the organizational capacity to facilitate change. The fact that employees have to file lawsuits and become the heroes of news reports speaks further to the fact that Tesla has a poorly organized employee-manager feedback system. However, a few facts revealed in the U.S. only cannot reflect the situation in other business units.

Since Tesla’s profits grow in a stable manner each year, the scale of the problem could be perhaps overstressed. Change leadership in the U.S. units, however, still needs implementation. Tesla being a wealthy and successful company has the resources to hire the best HR specialists available, which allows saying that it has the capacity to bring about change. However, the realization of the necessity of such change is the crucial element of such a process. In this regard, it could be argued that the capabilities of Tesla Motors are limited.

Quality Assurance

Quality assurance (QA) is a sphere where constant advancements need to be made in order to deliver the best service and product possible. Each production department has a team of quality assurance specialists and a QA manager who reports having a competitive salary (senior quality assurance specialist Germany n.d.). The minimum experience requirement for a senior QA manager is five years. It gives a reason to believe that, provided there is a necessity in facilitating change, there are human resources who are able to do it.

Financial and Resource Management

Optimising spendings, ensuring adequate and competitive pricing together with the allocation of spare funds to promising projects are examples of everyday tasks of financial management in Tesla and any company. Again, the criteria for evaluating the effectiveness of a company’s operation in this sphere and the need for change in the first place could be annual financial performance. From this standpoint, the company seems to perform at the top of its capabilities showing outstanding tempos of annual growth. In 2015 Tesla’s revenue was reported to be $4 billion while in 2016 it almost doubled and reached $7 billion (Tesla annual report 2016).

Tesla has strong partners in the face of Toyota and Panasonic. Tesla also has strong leadership in the face of Elon Musk, the ideological leader and experienced CEO and founder of Space X and Paypal. The change leadership capacity is placed on Musk’s team of financial analysts and himself as a visionary leader. It is also seen through the inspiration he manages to communicate to people around the world and Tesla’s investors. He is passionate about what he does and has the utmost capacity to inspire change in the company. Moreover, he is one of the main investors and, therefore, has additional leverage to influence the board.

Logistics

Tesla’s logistics department has lately been failing to cope with its tasks. The sales of the Tesla Model 3 sedan were unsatisfactory due to the issues with robots at the Gigafactory (Shields 2017). Since the Gigafactory is divided into four manufacturing zones with each responsible for its stage of the car manufacturing, equal speeds of assembly should be maintained. However, the software that controls the integrator of all four zones’ robots has been performing poorly and had to be rewritten (Shields 2017). As a result, Tesla failed to meet its obligations before the customers, who made a pre-order. In addition, the only factory that produces Tesla vehicles is located in the U.S. which means the customers from other locations have to wait till their car is shipped to the nearest sales centre.

Tesla has an excellent capacity for change management in the sphere of inner manufacturing logistics from the standpoint of automatisation. As soon as the robotic integrator is fully operational, the system can be upgraded or reprogrammed to perform a different task more easily when a manual assembly factory. Therefore, it has the resources to facilitate change. However, it was a logistics manager and production supervisor who failed to organize the process of fixing the issue before the assembly began. Thus, the change leadership capabilities of the staff need improvement.

Monitoring and Evaluation

Monitoring and evaluation of the results is another important sphere, where change leadership might be required and the capabilities to introduce them need to be present. The main tool for monitoring and evaluating the company’s performance is its annual report. Real-time monitoring is established by analysts in different departments, featuring financial, logistics, algorithmic, IT, and other analysts. Their work is later reviewed at the board meetings where the board and the CEO decide on the necessity and nature of response measures. An additional evaluation tool is the price of the company’s shares on the market, analysed by financial analysts and the board. Despite minor inconsistencies in production and logistics, the company has managed to remain profitable, which means that the overall awareness of the market situation and future projections were performed diligently and with the utmost professionalism. Consequently, the human capital appears to be competent to guide the company through its daily challenges despite minor mistakes and can be assumed to facilitate change with the same degree of finesse.

Research and Development

The R&D department represents a change in its full meaning. The change leadership capacity there needs to be outstanding. Tesla produces the highest-performing energy solutions on the market due to the fact that the best intellectuals work at Tesla to advance the age of green technologies. Its batteries cost significantly less and allow three times the range as those of their competitors. The philosophy of Tesla’s R&D Elon Musk formulated saying, ‘Almost any new technology initially has high unit cost before it can be optimized’ (Musk, 2006, para. 3). The company leadership realized that to perform a change, the necessary environment must be created. As such, if Tesla were to produce some of its creations for the mass market before the technology is optimized, they would definitely lose money because no one would buy the product because of its cost. The capacity for change leadership in the R&D is present in the form of the informed patience of its leaders and in the hard work they have already demonstrated.

Summarising the capabilities for organisational change in Tesla to deal with the VUCA environment, it can be stated that in most of the key domains such capabilities are present. However, the issues with staffing policy undermine effective change management in the spheres such as HR and Logistics. The leaders in those departments are incapable of producing adequate responses to the challenges of the present, and therefore, are likely to fail to cope with altering the future.

Recommendations for VUCA Change Leadership Capabilities

Having analysed the present issues and challenges that Tesla faces in the present-day world and inner organizational change leadership capacity, it has been concluded that understanding, adaptability, and courage are the primary capabilities that Tesla Motors lacks.

Understanding, according to George (2016), is a deep realization of the company’s strengths and weaknesses and knowledge on how to correct them gained through multiple sources. Such understanding is lacking in the HR domain, especially when it comes to managing communication with employees. The managers there fail to realise that people are the most precious assets of the company and their feedback needs to be always valued and cared for.

A report of a human rights violation issue must be managed with utmost swiftness and diligence in order to maintain stability within the team. Issues in logistics and manufacturing that have caused the new Tesla model to be shipped within the set deadline could also be corrected by communicating the key values to the people whose work depends on the quality of service and brand loyalty as well as the company’s revenues. Understanding will also help leaders better assess the political situation in a country or the world to better plan their sales, marketing, and investment strategy.

Adaptability is viewed as the ability to be flexible in planning and in fitting into new conditions for business operation making the most of the new environment with the resources one has (George 2016). Such a component seems to be missing in people who make key decisions in the company because they fail to achieve the goals they set for themselves. If the main goal is to advance renewable sources of energy and make them available to the population, then Tesla’s competitive, Nissan. Their Leaf model has become the most popular electric car in the world (Nissan 2018). It is much more affordable even though it was introduced in 2010. Since that time, despite its claims to produce for the mass market, Tesla continued to make cars in the higher price segment.

Courage is the change leader’s characteristic that allows taking informed risks where necessary in order to explore new horizons (George 2016). Despite having immense financial capabilities, Tesla seems to fear the competition in the low-price segment and does not want to produce such cars until it is absolutely sure that it will win. The problem is, they already losing their clients’ loyalty due to the unfortunate start of Model 3 sales. An expansion could be just the remedy and a fresh start that a company needs. Exploring cheaper materials instead of new technologies could also be beneficial. Courage is also needed to voice concern on the nuclear crisis between the U.S. and North Korea, which will also add to the positive image of the company leaders.

Barriers towards the Implementation of the Recommendations

One of the major barriers towards the implementation of the mentioned recommendation is a personal lack of desire to change. From the perspective of the CEO and the Board all seems to be working well except for a few scandals. However, if a company remains on the market with the leadership skills that are no longer utilizable in the new VUCA environment Tesla can easily lose its revenues and even go bankrupt. The first signs of this process are already in view such as employee maltreatment and inadequate staffing policies in key departments.

Another barrier is the inability to change due to the lack of flexibility. A person taking the leader post may be too old-fashioned to change. In such a case, senior management should ask such people to leave for the sake of the company’s prosperity. In case such people are among the ranks of the board, other members should pay close attention and prevent the disaster from happening.

Conclusion

All things considered, Tesla is a company with huge opportunities ahead of it. The implications of the world’s recent major events and trends that created the need for new change leaders suggest that Tesla should change some of its current practices to survive in the VUCA environment. Provided it utilizes its strengths such as the vision provided by its CEO and develops understanding, courage, and adaptability, it will be able to navigate through the hardships of today’s world and prosper while fulfilling the goal of advancing renewable energy. Eliminating the inability and lack of desire to change amongst its managers will promote healthy change leadership practices in the company.

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