Strategic Management and Environmental Turbulence

Overview

The past decade ushered in a new era of heightened environmental turbulence. To the business entities, it calls for a need to lay down strategies that will eventually guarantee the long-term sustainability of the firm and its operations.

Strategic Management and Environmental Turbulence

Introduction

There is a rapid development today more than any other time in human history. Such advancement serves as an absolute proof of the infinite human need for efficiency and constant improvement; though mostly at a sacrifice of the environment. In fact, history has it that the human activity is arguably a major cause of the challenges that the world faces today. As a first step of neutralization, most government bodies have enacted policies that foresee the embrace of sustainability to the environment by business entities. Resultantly, many business entities are obliged to conceive innovative ways to counter the societal challenges (Bilton et al.,  2010). While most firms lack the innovative drive to embrace change and subsequently utilize the opportunities that come with it, a few persistent firms, like Tesla, guarantee their survival through the turbulent business environment by carefully exploiting the vast modern business opportunities. To effectively do this, Tesla invests heavily on in-depth research and development activities to pave a way for the crucial business strategies needed to foster the long-term existence as well as the market expansion. The paper, therefore, aims at discussing the strategies in detail with due consideration of the turbulence in the business environment conditions.

Environmental Turbulence

Environmental Turbulence essentially refers to the intensity of the overall change and the inevitable complexity observed in the environment of a business enterprise. It is notable that the level of the environmental turbulence gets higher as a consequence to the increased changes to most of the environmental factors, more so the technology and the regulations imposed by the government bodies (Calantone et al., 2003). Most scholars have argued that the industrial revolution explosion over the past century is one of the remarkable catalysts to the observed environmental volatility in the modern times.

In the case of Tesla Company, environmental turbulence dimensions have been manifested both positively and negatively. In as much as the readily available opportunities present a chance for the organization to thrive with the newly introduced technology, business threats such as high prices for the batteries can scare away potential customers. Such is the nature of complexity and dilemma faced by the company.

 In the modern times, the climatic condition is changing very fast. Most scientists believe that green house gasses emitted by the non-renewable sources of energy are responsible. Thus, Tesla's storage battery is a response to this turbulence by playing a complementary role to the renewable sources of energy such as the wind and solar power. Additionally, the ever-rising health concerns have called for dynamic steps to be taken to ensure the utilization of cleaner energy.

On the other hand, the advancement in modern education system and its affordability has led to the majority of the population, especially in the developed world, to become knowledgeable and highly aware of their needs, unlike in the past. Due to this, the consumers are empowered to compare the costs of the products in the market before they can choose that which fits their needs and financial capability (Hoyer et al. 1990). In the case of Tesla, the turbulent environment has led to the consumers’ knowledge of the exploitative means that grid companies use. To avoid these, there is a probability that they will embrace the non-exploitative and cost effective alternative— Tesla Powerwall storage batteries.

Telsa’s management is well aware of the non-predictive nature of the future market. The unprecedented shifts in the technology can easily render the storage battery technology obsolete. But as a business, there it is necessary to take calculated risks. Well armed with this knowledge, Tesla’s management is offering an up to 10 years warranty for the buyers. This is a strategy that is mainly aimed at gaining the consumer confidence, hence ensuring easier market penetration.

Macro-Environmental Issues

1.      Political Challenges

In most countries, the government is the key electricity grid distributor. Therefore, the lack of privatization greatly inhibits the competition in the energy sector. Additionally, the government has enacted strict regulations so as to curb the energy market at the same time guarding the state-owned business entities, for example, the nuclear energy facilities. Unfortunately, the regulations are not in favor of the start-up renewable energy companies like Tesla. The government is yet to embrace the cleaner sources of energy like solar and storage batteries, which can comfortably be achieved through subsidization to the new industry.  The heavy taxes imposed to such companies leads to the overpriced technology products, further scaring away the potential customers and investors (Ginter et al., 1990)

2.      Economic Environment

Less than 10 years ago, the globe was engulfed in an economic crisis. To date, most economies, especially from the Europe continent, are yet to fully recover from the devastating effect. But the economic turmoil served as a lesson to most of the business entities that survived the impact. The Tesla management learned that the economic environment is ever dynamic, and for the business to survive, tactical, well-calculated and effective steps have to be undertaken. As a result, the company decided to adopt a sustainable business strategy that ensures the investment in the compliments of the renewable energy to meet the modern market demands. Though it is a risky maneuver, but its success may yield exponential benefits to the organization.

3.      Environmental challenges

Baylis et al., (1998) argues that the destructive human activities like the use of wood energy and other nonrenewable sources of energy such as diesel and coal have brought a negative effect to the environment. In itself, the challenge presented an opportunity to Tesla Company – an opportunity to counter the threat of further degradation by offering a complement to a cleaner solar and wind energy.

4.      Social Issues

People are yet to adopt the culture of embracing clean energy. In turn, there is a need for expansive awareness creation by Tesla Company regarding the new technology. For the storage battery to be accepted widely across California State, Tesla has to heavily invest in product promotion, further burdening the organization with the increased operational and marketing cost.

5.      Legal Issues

Being a new product, Tesla is obliged to patent the product. Failure will lead to a string of lawsuits from the claimants of the patents. Additionally, Tesla product will not attract a wider market in the United States especially in places like Texas, where the average cost of grid electricity is quite low in comparison to the average cost of the battery, inverter, and solar installation. As such, the success of the product can only be ensured if it is introduced to a global market. Consequently, the international business laws regarding the renewable energy products are still at an infantry stage, thus implying a vulnerability challenge to the product penetration to a wider market.

6.      Stiff Competition

The energy sector is a highly competitive business environment. In fact, its sensitivity has led to the dominance by the federal government. As such, startup companies with new products find it hard to penetrate.

South California Public Power Authority (SCPPA)

This is a power company that provides grid electricity to a major market share in the state of California. However, it is notable that the company’s main energy source is coal and hydroelectricity. But during the times of dry spell, the company back up the electric production with diesel powered generators (Bradshaw, 2003). In the recent past, there has been a growing concern all over the United States that major electricity grid distributor's source for an alternative source of energy that is less pollutant to the environment. However, the SCPPA decision-making process has been gradual and, at times, filled with uncertainty. It was not until the past year that the state witnessed rapid rise by companies such as Tesla that SCPPA realized the growing competition that threatens its future operations. To maintain the market share for electricity supply, SCPPA has embarked on a business strategy that can enable it to withstand the turbulent business environment. In fact, the company has adopted the Turbulence Model as follows:

a.      Complexity

First, SCPPA acknowledges that the energy market is highly diversified. Resultantly, many business organizations are increasingly venturing to the sector, given the presence of a wide market in California. Given the inclination to the latest technology by the competitors (solar and wind technology), the company is seeking alliances from the startup companies. The alliances can be forged by the company buying the technology from the startup with a promise to boost its market presence. In the long run, the company is assured of gaining a competitive edge in the renewable energy sector over companies including Tesla. As an alternate measure, SCPPA is undergoing a massive organizational restructuring that ensures the overhaul old structure and the adoption of modern structure incorporation the conception of innovation, research and Development department that will source for ideas to improve the performance of the organization in the long run (SCPPA, 2015).

b.      Dynamism

Currently, a task force at SCPPA has been created with a sole purpose of observing the dynamic nature of the business environment. The recommendations of the task force are perceived to reflect on the environmental situation with regards to the intensity and frequency of changes. Such recommendation will aid the management in the decision-making process regarding the ways in which to venture to the renewable energy business (Miller et al., 1983).

c.       Unpredictability

The old SCPPA system heavily relied on human intuition to analyze the market conditions, trends and changes. Thus, the company was necessitated to benchmark from Tesla on how to effectively predict the market changes. This led to the integration of the current integration of advanced technological system that enables the business strategists at SCPPA to analyze market data to predict the future changes. The data that can by analyzed by the specialized computer application software include the trend of the consumers, the counrty’s economic situation and the current environmental situation.  The data outcome is therefore used in designing the products that conform to the timely needs (Davis et al., 1991).

The above model assessment enables the management of SCPPA to make well-informed decisions aimed at ensuring the long-term sustainability of the organization. Additionally, the Porter’s five forces model is used in making further identifications of the energy industry’s additional opportunities as well as the additional inevitable threats. Already, the management has made a decision of venturing into the inverter production business that will be used alongside Tesla’s batteries. Also, the SCPPA management is consulting with Tesla to find ways in which they can jointly invest in the production of solar panels as a way of slowly introducing the less expensive source of renewable energy in the State of California.

Implications

Tesla Company’s management is aware of the needs of the Customers. The ability to ingeniously create an energy storage battery is a manifestation of the firms’ determination to conform to the rapid environmental changes and to adhere to the government calls. Additionally, the ability to pioneer in a risky business demonstrates the entrepreneurial and leadership culture that is enshrined to the organization. This capability has enabled the firm to survive the turbulent environment. In a sharp contrast, the grid electricity company such as SCPPA represents the firms that lack the drive to innovate products that meet the ever-changing market needs—despite their larger capital base. Such firms are usually negatively affected by the threats emanating from the turbulent environmental conditions.

Conclusion

In conclusion, it is clear from the discussion that environmental turbulence is inevitable. Therefore, the management is obliged to embrace change by setting up and implementing effective strategies to maximize business benefit from the opportunities presented. At the same time, it is recommendable that business threats should be tackled effectively the proper utilization of both Turbulence and the Porter’s five forces business models.

References

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Bilton, C., & Cummings, S. (2010). Creative Strategy: Reconnecting Business and Innovation. Chichester, West Sussex [England: Wiley.

Bradshaw, T. (2003). Public Power in California. Philadelphia, PA: Xlibris Corp.

Calantone, R., Garcia, R., & Dröge, C. (2003). The Effects of Environmental Turbulence on New Product Development Strategy Planning. Journal of Product Innovation Management, 20(2), 90-103. Retrieved from http://onlinelibrary.wiley.com/doi/10.1111/1540-5885.2002003/full.

Davis, D., Morris, M., & Allen, J. (1991). Perceived Environmental Turbulence and its Effect on Selected Entrepreneurship, Marketing, and Organizational Characteristics in Industrial Firms. Journal of the Academy of Marketing Science, 19(1), 43-51. Retrieved from http://jam.sagepub.com/content/19/1/43.short.

Ginter, P. M., & Duncan, W. J. (1990). Macroenvironmental Analysis for Strategic Management. Long Range Planning, 23(6), 91-100. Retrieved from http://www.sciencedirect.com/science/article/pii/002463019090106E

Hoyer, W. D., & Brown, S. P. (1990). Effects of Brand Awareness on Choice for a Common, Repeat-Purchase Product. Journal of consumer research, 141-148.Retrieved from http://www.jstor.org/stable/2626806

Miller, D., & Friesen, P. H. (1983). Strategy‐Making and Environment: the Third Link. Strategic management journal, 4(3), 221-235. Retrieved from http://onlinelibrary.wiley.com/doi/10.1002/smj.4250040304/full

South California Public Power Authority (SCPPA)  website (2015) Retrieved from http://www.scppa.org/