Corporate Strategy: SWOT Analysis

Published On - 29/01/2020

Sudhanshu Vuppuluri Automobile Powertrains, Business Intelligence, Business Models, Competitive Research, Corporate Strategy, Crowd Sourcing, Electric Vehicles, Funding Trends, SWOT, Technology

SWOT Analysis was created by Albert S. Humphry (Late), who led a research project at Stanford University in the 1960s and 1970s. The project’s goal was to identify why corporate planning failed. Initially, this abbreviation was coined—SOFT analysis—Satisfactory, Opportunity, Fault, Threat. In 1964, SOFT analysis was presented in a seminar at Zurich. Where Urick and Orr, changed the F to a W, which led to SWOT analysis [1][2]. This acronym stands for: Strengths, Weaknesses, Opportunities, Threats. Later, this evolved to a matrix format: internal factors (Strengths, Weaknesses), and external factors (Opportunities, Threats).

This tool is extremely useful when to start a new project or to evaluate leadership qualities of a person [3].

The main advantages of this framework are [4][5][6]:

  • Helps identify firm’s core competencies
  • Four perspectives of any given scenario
  • Application neutrality—strategic planning, opportunity analysis, competitive analysis, business development or product development processes

Some disadvantages of this framework are [4][5][6]:

  • Subjective nature of factors—requires extensive data for unbiased review
  • Short lifespan of analysis (market conditions impact external factors)
  • Ambiguity and non-quantitative approach (priority & weightage of factors)

How do we use SWOT analysis effectively?

Let’s review it through a popular example.

Tesla’s share price hit a record high on 22nd Jan. enabling its market capitalization above $100 billion, while the stock closed at $569.56 per share. Its market valuation surpassed Volkswagen, making it second to Toyota, and far ahead of fellow American giants Ford & GM [7][8]. Many analysts are sceptical about the sustainability of this valuation. Though, some say it’s possible to maintain this “hype”, if Tesla maintains its growth targets and Elon Musk avoids ‘Bad Press’ [9][10].

How did Tesla, a Silicon Valley startup rise to such heights in less than 20 years of its existence [11][12][13]?

  • First, develop high-performance electric sports cars (brand image, high margins, sustain R&D expenses)
  • Next, develop mid-market cars & SUVs/Crossovers (sustainable margins, increase market share)
  • Finally, develop mass-market cars (low margins, crowdfunding, volume production, high market capitalization)

Tesla was started in 2003, then known as Tesla Motors (2003-17), by Martin Eberhard (CEO) and Marc Tarpenning (CFO). They were inspired by GM’s electric car experiment—EV1. GM ran this program from 1996 to 1999. It was shut down due to a niche customer interest for this 2-seater subcompact coupé (unprofitable, low margins, under 100-mile range) [14][15].

In 2004, Elon Musk invested over $30 million and served as Tesla’s chairman. Since 2008-present, Elon has been Tesla’s CEO. He’s the longest tenured CEO of any global automotive manufacturer. They launched their first car, an electric Roadster in 2008, with a range of 245 miles (394 km). It could accelerate from 0 to 60 miles (96km) in less than 4 seconds, and reach a top speed of 125 miles (200 km) per hour. It was priced at $109,000, after a federal tax credit of $7,500. Today, they operate in 32 countries across North America, Europe, Middle-East, and Asia-Pacific regions. Their variants include: Model S, Model X, Model Y, Model 3, Roadster, and Cybertruck [14][15][16][17][18][19].

SWOT Analysis for Tesla, Inc. [20][21][22][23][24][25]:

To conclude, Tesla is a classic example of visionary thinking and focussed execution. Even with a fair share of bad press and SEC controversies, they excelled, by investing in new technologies.

Some key ones include—

  • IOTs/connected technologies
  • Multiple sensors (data analysis for tailored preferences)
  • Machine learning (robotic manufacturing)
  • Crowdfunding (Model 3: pay now & receive later, financial engineering)

They turned weaknesses into strengths by vertically integrating battery manufacturing; use factory-robots in Gigafactory’s to help them lower costs in automobile manufacturing. They also possess first-mover advantage in the electric car market, as we face severe negative effects of global warming. This gives them a cult-like following (like top Rock bands’).

Generally, a CEO’s tenure is six years (USA), as shareholders focus on short-term growth (quarterly performance). In case of Tesla, Elon held the CEO role for over a decade (2008-present). This helped him execute his vision and strategies towards the long-term growth of Tesla (alignment of incentives) [32][33][34][35].

© Sudhanshu Vuppuluri, 29-01-2020

References:

  1. https://rapidbi.com/history-of-the-swot-analysis/
  2. https://www.businessnewsdaily.com/4245-swot-analysis.html
  3. https://www.mindtools.com/pages/article/newTMC_05.htm
  4. https://www.managementstudyguide.com/swot-analysis.htm
  5. https://status.net/articles/swot-analysis-process-benefits-limitations/
  6. https://smallbusiness.chron.com/advantages-amp-disadvantages-swot-analysis-41398.html
  7. https://www.nytimes.com/2020/01/22/business/elon-musk-tesla-bonus.html
  8. https://www.bbc.com/news/business-51214824
  9. https://www.wired.co.uk/article/tesla-valuation
  10. https://www.cnbc.com/2020/01/21/tesla-crosses-100-billion-stock-market-valuation-in-extended-trading.html
  11. https://en.wikipedia.org/wiki/History_of_Tesla,_Inc.
  12. https://www.whereisroadster.com/tesla/
  13. https://medium.com/@vieran/how-tesla-just-pulled-off-the-biggest-crowdfunding-campaign-ever-12ce0808f02
  14. https://qz.com/952951/the-general-motors-gm-ceo-who-killed-the-ev1-electric-car-rick-wagoner-is-now-in-the-electric-car-business/
  15. https://en.wikipedia.org/wiki/General_Motors_EV1
  16. https://www.britannica.com/topic/Tesla-Motors
  17. https://en.wikipedia.org/wiki/Elon_Musk#Tesla
  18. https://edition.cnn.com/interactive/2019/03/business/tesla-history-timeline/index.html
  19. https://www.thestreet.com/technology/history-of-tesla-15088992
  20. https://articles.bplans.com/how-to-perform-swot-analysis/
  21. https://www.businessnewsdaily.com/4245-swot-analysis.html
  22. http://www.quickmba.com/strategy/swot/
  23. https://www.liveplan.com/blog/what-is-a-swot-analysis-and-how-to-do-it-right-with-examples/
  24. https://bstrategyhub.com/tesla-swot-analysis/
  25. https://interestingengineering.com/the-short-but-fascinating-history-of-tesla
  26. https://ww.electrek.co/2016/07/31/tesla-gigafactory-robots-machines-battery-factory/
  27. https://en.wikipedia.org/wiki/Tesla,_Inc.#Securities_Litigation_related_to_Potential_Going_Private_Transaction
  28. https://cleantechnica.com/2016/08/26/electric-vehicle-ranges-exceed-gasoline-powered-vehicles-chart/
  29. https://en.wikipedia.org/wiki/List_of_self-driving_car_fatalities
  30. https://www.ncsl.org/research/transportation/autonomous-vehicles-self-driving-vehicles-enacted-legislation.aspx
  31. https://www.wired.com/story/regulating-self-driving-cars-no-one/
  32. https://www.businessinsider.in/strategy/the-ceo-of-the-worlds-largest-automotive-company-sees-a-real-problem-holding-companies-back/articleshow/62839660.cms
  33. https://economictimes.indiatimes.com/frequent-changes-of-the-ceos-give-a-blow-to-sales-volumes-of-auto-companies-in-india/articleshow/53482483.cms?from=mdr
  34. https://www.automotive-iq.com/powertrain/articles/top-6-ceos-automotive-history
  35. https://insideevs.com/news/359100/tesla-elon-musk/
  36. Images: https://www.managementstudyguide.com/swot-analysis.htm, https://articles.bplans.com/how-to-perform-swot-analysis/, https://www.bbc.com/news/business-51214824, pexels.com (Photo by Craig Adderleyfrom Pexels, Photo by Lukas from Pexels), https://commons.wikimedia.org/wiki/File:TeslaRoadster-front.jpg , com (Photo by Dario on Unsplash; Photo by David von Diemar on Unsplash, Photo by Andreas Dress on Unsplash)