MBA 695 Strategic Management Strategic Analysis Tools The following (in no particular order) are some strategic tools that are used in strategic analysis. There are many other tools used for specific analyses – such as strategic marketing analysis or strategic human resources analysis. Doing web searches by the problem area of your organizational may also reveal other tools you can apply. PEST or PESTLE Analysis – external (political, economic, sociological, technological, legal, environment) Michael Porter’s Value Chain Analysis – to strengthen competitive advantage SWOT Analysis - Internal – Strengths & weaknesses; External – Opportunities & threats Michael Porter’s Five Forces - industry level analysis of competition and profitability Miles and Snow Typology – 4 types of business level strategies Resource Based View Analysis – internal resources Critical Success Factors (CSFs) & Key Results Areas (KRAs) – identify essential factors or results areas (D.R. Daniel & J.F. Rockart) Michael Porter’s Diamond of National Advantage (global competition) ??DESTEP Analysis - demographic, economic, social, technological, ecological and political analysis. IFE & EFE Matrixes – weigh & rate key internal/ external factors John Kay’s Distinctive Capabilities Framework – relationship development ??Benchmarking – identify best practices in a specific industry Osterwald & Pigneur - Business Model Canvas – design, define and defend business model ??Competitive Profile Matrix – strengths & weaknesses of competitors ??Boston Consulting Group (BCG) Analysis – assess an organization’s products/services VRIO Analysis – internal resources McKinsey 7s Framework – align an organization for maximum performance Lafley & Martin’s 5 Step Strategy Model Running head: Solving Tesla’s Market Demand for Electric Car Problem Solving Tesla’s Market Demand for Electric Car Problem MBA 695 Strategic Management Park University Anthony Crowdus 1 Running head: Solving Tesla’s Market Demand for Electric Car Problem 2 Introduction Tesla Inc. is a public U.S. based company that deals in solar panel manufacturing, energy storage, and auto-making; it is headquartered in Palo Alto, California. Tesla Inc. specializes in the designing, manufacturing, and selling of electric vehicles and products for storing energy. Subsequently, the company operates in the Energy storage and Automotive industries. Tesla Inc., originally known as Tesla Motors, was founded in July 2003 by Marc Tarpenning and Martin Eberhard. It was named after the Serbian inventor and engineer, Nikola Tesla, whose original AC Motor design was modified to develop the company's first vehicle, the Tesla Roadster (Baer, 2014). Tesla Motors was originally formed to develop an electric car, and it was not till 2008 that the company released its first vehicle. The company went public and launched its IPO in June 2010. In 2015, Tesla Motors began its second product line: home use battery. Tesla Motors officially changed its name in February 2017 to Tesla Inc. The company's products are a reflection of its vision and mission statements which are: "to create the most compelling car company of the 21st century by driving the world's transition to electric vehicles" and "to accelerate the world's transition to sustainable energy" respectively (About Tesla, n.d., para. 3). The company which has 33,000 employees globally, at the end of the financial year 2016, reported its worldwide revenue to be $ 7 Billion and a Net loss of $773 Million (Tesla Inc., 2017). Tesla's competitive advantage is as a result of its exclusive focus on electric vehicles which allows it to sell directly to customers thus reducing overhead costs. Similarly, it has been able to deliver a vast network of superchargers to its product users in the U.S. who have not been rivaled by any other players in the industry. The convenience provided by this charging network makes it a preferred brand by consumers of electric vehicles. The fact that Tesla has been the first automaker to offer this free-for-life service will make it difficult for Running head: Solving Tesla’s Market Demand for Electric Car Problem 3 others seeking to compete with it. Tesla Inc. aims to produce and sell 500,000 vehicles annually by 2018 (Tesla, Inc., n.d.a). Problem Statement The problem at TESLA is how to meet market demands for its electric car over the next 2-5 years. A shortage of lithium batteries used in the manufacturing of electric cars is the main critical issue facing Tesla Inc. This deficiency in battery supply is particularly important given the company's goal of producing 500,000 cars by 2018, which according to Tesla, will require the entire current global lithium-ion battery supply (Tesla, Inc., n.d.b). Increased use of lithiumion batteries to produce electric vehicles, smartphones and laptops among other things have caused a shortage in the supply (Novio Litio, Ltd., 2017). In the first half of the year, Tesla was not able to meet its production target because of a shortage of lithium battery packs (Disis, 2017). The company only managed to produce and sell slightly over 47,000 cars which according to the company was well below its target. Running head: Solving Tesla’s Market Demand for Electric Car Problem References Baer, D. (2014). The Making of Tesla: Invention, Betrayal, and the Birth of the Roadster. Business Insider. Retrieved from http://www.businessinsider.com/tesla-the-origin-story2014-10?IR=T Disis, J. (2017). Tesla says battery shortage hampered car deliveries. CNN Tech. Retrieved from http://money.cnn.com/2017/07/03/technology/tesla-battery-car-deliveries/index.html Novio Litio, LTD. (2017). Lithium supply and demand. Retrieved from https://www.dakotaminerals.com.au/lithium/lithium-supply-demand Tesla, Inc. (2017). Tesla Fourth Quarter & Full Year 2016 Update. Retrieved from http://files.shareholder.com/downloads/ABEA4CW8X0/3944087523x0x929284/22C29259-6C19-41AC-9CAB899D148F323D/TSLA_Update_Letter_2016_4Q.pdf Tesla. (n.d.a). About Tesla. Retrieved from https://www.tesla.com/about Tesla (n.d.b). Gigafactory. Retrieved from https://www.tesla.com/gigafactory 4 Strategic Analysis – Part 1 The Strategic tools that will be utilized in determining how Tesla will meet market demands for its electric cars over the next 2-5 years will be PESTLE analysis, Resource Based View analysis, and VRIO Analysis. A few formulas within the Strategic Performance Ratios will be used in conjunction with the Resource Based View analysis; ROE, Gross Margin, ROIC, etc (Dyer, Godfrey, Jensen & Bryce, 2016, p. 302). Consideration for two other strategic analysis tools was contemplated but ultimately ruled out in favor of the previously mentioned tools. SWOT and Michael Porter’s Value Chain analysis were the two other tools that posed probable in the analysis of Tesla’s strategic planning. SWOT ended up being similar to PESTLE as far as tools companies use to plan ahead strategically. PESTLE analysis is a more thorough review of the external environment while SWOT focused more internally. Having decided on VRIO analysis, which also focused more on internal analysis, SWOT and Value Chain analysis wasn’t necessary. References Dyer, J., Godfrey, P., Jensen, R., & Bryce, D. (2016). Strategic management: Concepts and tools for creating real world strategy. Hoboken, NJ: John Wiley & Sons, Inc. Instructor’s comment: Under the heading Strategic Analysis – Part 1, you were to describe and justify the use of three strategic tools that you could apply to help solve or improve the problem you have selected and why you feel each of those tools is appropriate. At least one of the three tools must consider financial data with at least one formula from Dyer et al (2016, pp. 302-304). Your Strategic Analysis- Part 1 described multiple strategic tools you plan to use in your strategic analysis but did not explain thoroughly why you think each of them are appropriate. None of the tools is mentioned as having a financial component. Additionally, you are to describe at least two tools that you considered but did not use and why. You wrote two tools that were considered, but did not follow-up with a reason why. This is a total of 5 tools that you reviewed reviewed. A handout in this unit listed some possible tools as does Appendix A in the main text (Dyer et al, 2016, p. 292-301). You had some awkward writing. Please revise while writing the next section; Strategic Analysis – Part 2. In this section, you apply three of the tools that you described in Part 1 as being appropriate for the problem in the week 4 project section. Be sure there is some analysis of financial data as part of your Strategic Analysis Part 2. The Word file goes into a Turnitin drop box. APPENDIX B 20 Vatuabte Financiat Ratios for Strategic Anatysis A nalysis of a firm's financial statements proves valuable Aro ,t,.ur.gists. The most valuable financiai analysis interprets results as ratios, one thing divided by another. When doing financial ratio analysis in a strategy context, analysts focus on those ratios that speak to the firm as a whole, and look at ratios with long-term implications for the operation of the business. Operating measures, also included here, help strategists understand how well a business is doing in the shorter term. Short term results can be a signal oflong term strength, or weakness, in the overall strategy. Specificaliy, there are four things to keep in mind: 1. Look for ratios that tell you how a firm is performing with its current strategy. Financial performance tells you how well a company's strategy fits in its environment, and it tells you how well the company is doing in implementing that strategy. Be careful to distinguish between a firm's ongoing operations and special one-time results (such as a charge-off, reserve expense, or windfall return). 2. Look for ratios that teil you how much flexibility (capacity or slack) a firm has to grow and/or change its strategy. A firm may be performing well today but have little slach or unused capacity, to deal with Net Profit Margin Net lncome Sales Gross Margin Sales - Cost of Goods SoLd Sales Return on Assets Net lncome TotaL Assets Return on EquitY Net lncome Totat Equity 302 l changes in the environment, competitive moves, or the ability to capltahze on new growth. is comparative-how does the firm compare to its closest rivals? Other industry 3. The best analysis participants? With itself over time? Ratios mean litile in and of themselves. For example, is a 15% gross margin good? If you are a grocer, probably but if you are a tech company that may be horrible. Ratio analysis only makes sense when you can compare the firm to a benchmark Good benchmarks include the best firm in the industry, the flrms closest competitor, the average firm inthe industry, orthe firmt historicalperformance. 4. Financial analysis only measures returns to shareholders and/or debt holders. Financial reports dont usually shed much light on how a firm treats its employees-do they earn fair returns in wages and benefits? How about customers, do they receive quality products at a faar price? How about suppJiers or communities? In short, financial performance and analysis matters, but remember that shareholders are only one stakehoider and the firm must provide value to multiple stakeholders if it is to create and sustain a competitive advantage. The finaLfinanciaI return of The irue bottom Line of the business, after operations, financing, and taxes have been factored in business-answers the very simpte question: How The profitabiLity of the firm's products or services, inctuding onLy direct costs Hetps strategists understand how variabte costs inftuence p rofita bi tity The returns earned bY the assets empLoyed bY the firm firm uses the assets it has a profitabLe is the comPanY? Describes how efficient|.Y the controL over The returns to current stockhotders of the firm Describes how efficientLY the firm uses the equity under its contro[ caPitaL APPENDIX Return on lnvested Capitat Net lncome Debt + - B T 20 VALUABLE Dividends Equity FINANCIAL RATIOS FOR STRATEGIC ANALYSIS I 303 ] The returns to providers of both equity and debt Describes how eff icientLy ihe firm uses at[ types of Iinancial capitaL under its control Sales Productivity Earnings Productivity The amount of top-Line revenue generated per Sales # of Employees emptoyee The amount of profit generated per empLoyee Net lncome # of EmpLoyees Describes the efficiency of Lhe firm's human capitaI in generating sales Describes the efficiency of the lirm s human capitaI in generating profits STRATEGIC SLACK MEASURES Times lnterest Earned I The abiLity of the firm to lnterest Expense Net lncome Tax Expense lnterest Expense meet its commitments to I I bondhoLders EBITDA a I Free Cash Ftow I lnterest Expense Tax Expense Depreciation The operating performance of the firm, net of financing, tax, Amorttizaton and accounting treatments Net lncome Net lncome 1 I * lnterest Expense - Depreciation CapitaL Dividends Expenditures - The cash flows generated by a firm, net of investments in the future IcapitaL expenditures) and payments to sharehoLders A measure of the safety net a company has in meeting its debt payments-the higher this ratio, the more creditworthy a firm wi[L be The financiat resources the firm can use for Capitat Investments, taking on borrowing, funding acquisitions, etc. The financiaI resources the firm can use for investing in new businesses, projects, or other activities white stil.l. competing in its current ma Debt to Equity The leverage of the firm's Long LT D/E provides the same term capitaL structure basic information as D/E; the value comes in comparing the two numbers as it tetts you how levered the firm is in meeting shorL Lerm vs. long term commitments. The [iquidity of the firm, or its abiLity to meet its short term A measure of the ease with which the firm can meet at[ current demands on iis financiaI capitaL-the ruLe of thumb is a current raLio or the retative contribution of debt capitat in the overaL[ TotaL Equity Long-Term D/E capitaL structure The higher the D/E ratio, the less witting providers of debt wiL[ be to finance growth or change The tota[ leverage of the firm, TotaL Debt Long Term Debt TotaL Equity rkets OPERATING EFFICIENCY MEASURES Current Ratio Current Assets Current LiabLities ob Ligatio ns above 2 Acid Test Current Assets - lnventory Current LiabiLities The abitity of the firm to meet its obtigations without seLting i nventory An acid test ratio of less than 1 means a firm faces liquidity issues and may not be ab[e to meet its short term obtigations MBA 695 Strategic Management Strategic Analysis Tools The following (in no particular order) are some strategic tools that are used in strategic analysis. There are many other tools used for specific analyses – such as strategic marketing analysis or strategic human resources analysis. Doing web searches by the problem area of your organizational may also reveal other tools you can apply. PEST or PESTLE Analysis – external (political, economic, sociological, technological, legal, environment) Michael Porter’s Value Chain Analysis – to strengthen competitive advantage SWOT Analysis - Internal – Strengths & weaknesses; External – Opportunities & threats Michael Porter’s Five Forces - industry level analysis of competition and profitability Miles and Snow Typology – 4 types of business level strategies Resource Based View Analysis – internal resources Critical Success Factors (CSFs) & Key Results Areas (KRAs) – identify essential factors or results areas (D.R. Daniel & J.F. Rockart) Michael Porter’s Diamond of National Advantage (global competition) ??DESTEP Analysis - demographic, economic, social, technological, ecological and political analysis. IFE & EFE Matrixes – weigh & rate key internal/ external factors John Kay’s Distinctive Capabilities Framework – relationship development ??Benchmarking – identify best practices in a specific industry Osterwald & Pigneur - Business Model Canvas – design, define and defend business model ??Competitive Profile Matrix – strengths & weaknesses of competitors ??Boston Consulting Group (BCG) Analysis – assess an organization’s products/services VRIO Analysis – internal resources McKinsey 7s Framework – align an organization for maximum performance Lafley & Martin’s 5 Step Strategy Model Strategic Analysis – Part 1 The Strategic tools that will be utilized in determining how Tesla will meet market demands for its electric cars over the next 2-5 years will be PESTLE analysis, Resource Based View analysis, and VRIO Analysis. A few formulas within the Strategic Performance Ratios will be used in conjunction with the Resource Based View analysis; ROE, Gross Margin, ROIC, etc (Dyer, Godfrey, Jensen & Bryce, 2016, p. 302). Consideration for two other strategic analysis tools was contemplated but ultimately ruled out in favor of the previously mentioned tools. SWOT and Michael Porter’s Value Chain analysis were the two other tools that posed probable in the analysis of Tesla’s strategic planning. SWOT ended up being similar to PESTLE as far as tools companies use to plan ahead strategically. PESTLE analysis is a more thorough review of the external environment while SWOT focused more internally. Having decided on VRIO analysis, which also focused more on internal analysis, SWOT and Value Chain analysis wasn’t necessary. References Dyer, J., Godfrey, P., Jensen, R., & Bryce, D. (2016). Strategic management: Concepts and tools for creating real world strategy. Hoboken, NJ: John Wiley & Sons, Inc. Instructor’s comment: Under the heading Strategic Analysis – Part 1, you were to describe and justify the use of three strategic tools that you could apply to help solve or improve the problem you have selected and why you feel each of those tools is appropriate. At least one of the three tools must consider financial data with at least one formula from Dyer et al (2016, pp. 302-304). Your Strategic Analysis- Part 1 described multiple strategic tools you plan to use in your strategic analysis but did not explain thoroughly why you think each of them are appropriate. None of the tools is mentioned as having a financial component. Additionally, you are to describe at least two tools that you considered but did not use and why. You wrote two tools that were considered, but did not follow-up with a reason why. This is a total of 5 tools that you reviewed. A handout in this unit listed some possible tools as does Appendix A in the main text (Dyer et al, 2016, p. 292-301). You had some awkward writing. Please revise while writing the next section; Strategic Analysis – Part 2. In this section, you apply three of the tools that you described in Part 1 as being appropriate for the problem in the week 4 project section. Be sure there is some analysis of financial data as part of your Strategic Analysis Part 2. The Word file goes into a Turnitin drop box. MBA 695 Strategic Management Strategic Analysis Tools The following (in no particular order) are some strategic tools that are used in strategic analysis. There are many other tools used for specific analyses – such as strategic marketing analysis or strategic human resources analysis. Doing web searches by the problem area of your organizational may also reveal other tools you can apply. PEST or PESTLE Analysis – external (political, economic, sociological, technological, legal, environment) Michael Porter’s Value Chain Analysis – to strengthen competitive advantage SWOT Analysis - Internal – Strengths & weaknesses; External – Opportunities & threats Michael Porter’s Five Forces - industry level analysis of competition and profitability Miles and Snow Typology – 4 types of business level strategies Resource Based View Analysis – internal resources Critical Success Factors (CSFs) & Key Results Areas (KRAs) – identify essential factors or results areas (D.R. Daniel & J.F. Rockart) Michael Porter’s Diamond of National Advantage (global competition) ??DESTEP Analysis - demographic, economic, social, technological, ecological and political analysis. IFE & EFE Matrixes – weigh & rate key internal/ external factors John Kay’s Distinctive Capabilities Framework – relationship development ??Benchmarking – identify best practices in a specific industry Osterwald & Pigneur - Business Model Canvas – design, define and defend business model ??Competitive Profile Matrix – strengths & weaknesses of competitors ??Boston Consulting Group (BCG) Analysis – assess an organization’s products/services VRIO Analysis – internal resources McKinsey 7s Framework – align an organization for maximum performance Lafley & Martin’s 5 Step Strategy Model APPENDIX B 20 Vatuabte Financiat Ratios for Strategic Anatysis A nalysis of a firm's financial statements proves valuable Aro ,t,.ur.gists. The most valuable financiai analysis interprets results as ratios, one thing divided by another. When doing financial ratio analysis in a strategy context, analysts focus on those ratios that speak to the firm as a whole, and look at ratios with long-term implications for the operation of the business. Operating measures, also included here, help strategists understand how well a business is doing in the shorter term. Short term results can be a signal oflong term strength, or weakness, in the overall strategy. Specificaliy, there are four things to keep in mind: 1. Look for ratios that tell you how a firm is performing with its current strategy. Financial performance tells you how well a company's strategy fits in its environment, and it tells you how well the company is doing in implementing that strategy. Be careful to distinguish between a firm's ongoing operations and special one-time results (such as a charge-off, reserve expense, or windfall return). 2. Look for ratios that teil you how much flexibility (capacity or slack) a firm has to grow and/or change its strategy. A firm may be performing well today but have little slach or unused capacity, to deal with Net Profit Margin Net lncome Sales Gross Margin Sales - Cost of Goods SoLd Sales Return on Assets Net lncome TotaL Assets Return on EquitY Net lncome Totat Equity 302 l changes in the environment, competitive moves, or the ability to capltahze on new growth. is comparative-how does the firm compare to its closest rivals? Other industry 3. The best analysis participants? With itself over time? Ratios mean litile in and of themselves. For example, is a 15% gross margin good? If you are a grocer, probably but if you are a tech company that may be horrible. Ratio analysis only makes sense when you can compare the firm to a benchmark Good benchmarks include the best firm in the industry, the flrms closest competitor, the average firm inthe industry, orthe firmt historicalperformance. 4. Financial analysis only measures returns to shareholders and/or debt holders. Financial reports dont usually shed much light on how a firm treats its employees-do they earn fair returns in wages and benefits? How about customers, do they receive quality products at a faar price? How about suppJiers or communities? In short, financial performance and analysis matters, but remember that shareholders are only one stakehoider and the firm must provide value to multiple stakeholders if it is to create and sustain a competitive advantage. The finaLfinanciaI return of The irue bottom Line of the business, after operations, financing, and taxes have been factored in business-answers the very simpte question: How The profitabiLity of the firm's products or services, inctuding onLy direct costs Hetps strategists understand how variabte costs inftuence p rofita bi tity The returns earned bY the assets empLoyed bY the firm firm uses the assets it has a profitabLe is the comPanY? Describes how efficient|.Y the controL over The returns to current stockhotders of the firm Describes how efficientLY the firm uses the equity under its contro[ caPitaL APPENDIX Return on lnvested Capitat Net lncome Debt + - B T 20 VALUABLE Dividends Equity FINANCIAL RATIOS FOR STRATEGIC ANALYSIS I 303 ] The returns to providers of both equity and debt Describes how eff icientLy ihe firm uses at[ types of Iinancial capitaL under its control Sales Productivity Earnings Productivity The amount of top-Line revenue generated per Sales # of Employees emptoyee The amount of profit generated per empLoyee Net lncome # of EmpLoyees Describes the efficiency of Lhe firm's human capitaI in generating sales Describes the efficiency of the lirm s human capitaI in generating profits STRATEGIC SLACK MEASURES Times lnterest Earned I The abiLity of the firm to lnterest Expense Net lncome Tax Expense lnterest Expense meet its commitments to I I bondhoLders EBITDA a I Free Cash Ftow I lnterest Expense Tax Expense Depreciation The operating performance of the firm, net of financing, tax, Amorttizaton and accounting treatments Net lncome Net lncome 1 I * lnterest Expense - Depreciation CapitaL Dividends Expenditures - The cash flows generated by a firm, net of investments in the future IcapitaL expenditures) and payments to sharehoLders A measure of the safety net a company has in meeting its debt payments-the higher this ratio, the more creditworthy a firm wi[L be The financiat resources the firm can use for Capitat Investments, taking on borrowing, funding acquisitions, etc. The financiaI resources the firm can use for investing in new businesses, projects, or other activities white stil.l. competing in its current ma Debt to Equity The leverage of the firm's Long LT D/E provides the same term capitaL structure basic information as D/E; the value comes in comparing the two numbers as it tetts you how levered the firm is in meeting shorL Lerm vs. long term commitments. The [iquidity of the firm, or its abiLity to meet its short term A measure of the ease with which the firm can meet at[ current demands on iis financiaI capitaL-the ruLe of thumb is a current raLio or the retative contribution of debt capitat in the overaL[ TotaL Equity Long-Term D/E capitaL structure The higher the D/E ratio, the less witting providers of debt wiL[ be to finance growth or change The tota[ leverage of the firm, TotaL Debt Long Term Debt TotaL Equity rkets OPERATING EFFICIENCY MEASURES Current Ratio Current Assets Current LiabLities ob Ligatio ns above 2 Acid Test Current Assets - lnventory Current LiabiLities The abitity of the firm to meet its obtigations without seLting i nventory An acid test ratio of less than 1 means a firm faces liquidity issues and may not be ab[e to meet its short term obtigations
Purchase answer to see full attachment