The Tesla Way

The disruptive strategies and models of Teslism

Michael Valentin

• Publisher: Kogan Page
• Year: 2019
• ISBN:
  9780749497040
• Edition: 1
• Topic: Business
• Subtopic: Manufacturing
• Index: Business

Tesla disrupts the automotive industry by creating many innovative pieces that fit together. Its marketing, production, sales and technology strategies are all notably different from its competitors. The Tesla Way is an elongated case study looking at Tesla's business model and how this can be applied to existing manufacturing and production strategies in other companies. The author also includes case studies from Michelin, Mass and other consumer goods manufacturing companies. The Tesla Way will look at the origins of Tesla, its journey to success, new business models and what will come next. The author includes a mixture of the theory behind the Tesla business model and its applications, examining the combination between the manufacturing world and the digital world. He has also interviewed a cross-section of Tesla's current employees in both the USA and France. At the end of each chapter an interview with a CEO or top manager of an industrial firm is featured: among others, the stories of Luxor Lighting, ThyssenKrupp, Bosch or Kimberley Clarke. There are also insightful questions for managers. Online supporting resources include sample templates for analyzing efficiency of processes on the factory floor.

01

The 3rd Industrial Age is over: So far so good

SUMMARY

Successive industrial revolutions have been marked by an exponential acceleration in technological progress. As illustrated by the legend of Balhait, the human mind struggles to apprehend exponential progress, explaining why current changes can be so disconcerting.

The period following the Second World War was characterized by a globalization phase marked by supply chains’ global dispersion, the offshoring of manufacturing and a belief in corporate gigantism – all in a context defined by financial market liberalization.

The end of the 3rd Age of Industry witnessed the emergence of Toyotism, a response adapted to consumers, shareholders and employees’ changing needs. Today this model is showing its limits. New imperatives like adaptability, responsiveness, customization and meaningful work have arrived, driven by the rise of digital technologies capable of transforming business models, the competitive landscape, consumer habits and employee expectations. The world of physical objects is having to adapt to a universe populated with information and data flows.

Not so long ago, companies used to talk about ‘happy globalization’. With the explosion in transportation options and volumes, and with the rise of globalized supply chains and productive facilities (driven by territorial arbitrages, themselves dictated by labour costs), companies have been incentivized to expand in order to achieve economies of scale, in a context defined by the liberalization of trade and financial markets. Toyotism, which would later be known as lean manufacturing, seemed like an organizational model that was particularly adapted to this era since it enabled improvements in quality, shorter production times and reduced stock – all of which helped companies’ working capital positions. Unbeknown to many, however, the Digital Era was already starting to destabilize this model, with established industrial companies’ operational modes being challenged by a host of factors, including the growing demand for immediacy, transparency and meaning; the exponential acceleration in technology (overturning long-standing competence platforms); and the arrival of new competitors from the digital universe.

Innovation and industrial revolution, the inevitable acceleration

Homo erectus first appeared a million years ago. Human beings stood up and progressively learnt to use their arms and differentiate themselves from other animals. Homo sapiens arrived 900,000 years later, bringing the first transformations of materials, culminating in the first use of tools; 90,000 years later, mankind began raising animals and growing crops; 9,000 years later, it was the printing press that would forever change communications between people (and indeed, build bridges between generations); 700 years later, James Watt invented the steam machine in what would soon be known as the 1st Industrial Revolution, but which actually marked the beginning of a kind of accelerated progress that people could actually perceive.

From this date onwards, major scientific breakthroughs occurred so frequently that the world that subsequent generations experienced would be characterized by constant renewal resulting from technological progress, with everyone living very differently than their parents had (or indeed, than their children or grandchildren would). The term ‘disruption’ is appropriate for qualifying the three major eras that followed, all marked by a movement that transcended simple technological change to generate new ways of working and a systematic response to certain very new economic and social needs arising in society. With the 1st Industrial Revolution, this occurred in the late 18th century, when the priority was to satisfy the demand for infrastructure, hence to build buildings and expand the transportation of people and goods. The steam machine would enable a mechanization of tasks leading in turn to new ways of working. Humans would learn to work with machines, with all the social consequences that came with this.

The next stop on this fresco of industrial progress was the 2nd Industrial Revolution about 100 years later. From a scientific perspective, the discovery of electricity was the trigger. But, once again, the consequences far transcended the actual invention. Electricity made it possible to organize factories differently by replacing a configuration based on one huge central steam engine with many small autonomous electricity-powered machines spread across the facilities. This ultimately gave birth to the principle of assembly-line production, leading in turn to massive productivity gains that made it possible to satisfy the mass demand that exploded from the early 20th century onwards. Socially, this revolution was accompanied by a new collective imagination symbolized by Charlie Chaplin’s famous film Modern Times. This was widely referred to as ‘assembly-line work’. In reality this marked the beginning of Fordism, an organizational model rooted in principles that an engineer named Taylor developed and that would make it possible to increase the efficiency of labour by a factor of 10, thanks to the specialization of tasks.

Sixty years later, a much more discrete revolution would occur. With the re-emergence and amplification of globalization, the first computers paved the way to robotics and the automation of tasks. The problem was that this latter innovation – necessitating enormous calculational power – quickly exceeded the capacity of the human brain, wired as it is for repetitive tasks. At this level, it is worth recalling Moore’s Law, named for the famous Intel engineer who invented the microprocessor and predicted that memory capacities double every 18 months. For the first time ever, people realized with this new Industrial Revolution that progress could be exponential. Even so, Moore was relatively conservative in his predictions. Fifty years later, his ‘times two’ law still applies, driving the ongoing rise in memory, storage and calculating capabilities. A closer look at the speed with which different human innovations have succeeded one another closely resembles an exponential law: homo erectus, 1 million years ago; homo sapiens, 100,000 years ago; agriculture, 10,000 years ago; printing, 600 years ago; steam engines, 300 years ago; electricity, 100 years ago; computing, 40 years ago… and today, the smartphone! (Figure 1.1)

Figure 1.1 Mankind and technological progress

SOURCE OPEO

The details of the time line are as follows:

• 1 million years: Homo erectus
• 100000 years: Homo sapiens
• 10000 years: Agriculture
• 1000 years: Printing press
• 200 years: Steam machine
• 100 years: Electricity
• 40 years: Microprocessor
• 10 years: Smartphone

The human brain and exponential law

People are used to living linearly. This is how our lives unfold and how our brains learn, bit by bit, each and every day. One useful way of representing mankind’s difficulty in conceptualizing the exponential law is the ancient Indian legend of King Balhait.

One day, when he was bored, Balhait decided to organize a competition offering a fabulous reward to anyone who could come up with a good distraction. A wise man named Sissa accepted the challenge with malice aforethought, inventing for this purpose (according to legend) the game of chess and presenting it to the king, who was totally enchanted and offered Sissa anything his heart desired in return for this extraordinary gift. Sissa’s response was to request that his sovereign reward him by placing one grain of rice on the chessboard’s first square, two on the second, four on the third and so on, doubling the amount of rice on each square until the whole board was full. When the king’s advisers tried to pay the debt, they soon realized that there was not enough rice in the kingdom to fill even half the chessboard. The king then understood that Sissa had played him and sentenced the man to death – meaning that Sissa ended his days as one of the first collateral victims of the exponential law that we still find difficult to understand.

This legend suggests the difficulties that the human brain has in conceptualizing a law that has yet to reach its ultimate form. Yet the modern era, which some pundits insist on still calling the ‘3rd Industrial Age’, is already governed by a principle of exponential progress. Indeed, this might explain the widespread sense of flux today – and the collective malaise regarding accelerated progress. Modern civilization has got close to the point where the slope of the curve accelerates, with progress becoming visible not only from one generation to the next but also within a single lifetime. All of which explains why it is worth detailing – before any discussions about the existence of a new Industrial Revolution (the 4th in history) – the characteristics of the 3rd Age of Industry, an economic, technological and organizational model that had unprecedented strengths and advantages but also clear limits.

The happy globalization paradigm

The West rebuilt after the Second World War to progressively evolve from mainly agricultural economies to ones specializing in industrial (and subsequently service-oriented) uses. Doped by increasingly abundant oil resources and looser barriers to trade, by the 1960s global trade had intensified again. From year to year, personal (and then merchandise) transportation began to democratize and expand, notably after the Berlin Wall fell in 1989. According to International Civil Aviation Organization (ICAO), air traffic reflected this general trend, rising from 10 million passengers in 1950 to 500 million in 1970 and 3 billion in 2010. This cut transportation costs and made it easier to manufacture goods far from their place of consumption.

Anecdotally, from the 1980s onwards, delocalization would become a huge phenomenon in the world’s industrial countries, particularly favouring the emergence of new Asian giants, starting with China. Together with the arrival of industrial IT systems, supply chain fragmentation would mean a global manufacturing of increasingly sophisticated products using highly complex production and transportation chains working on an end-to-end basis (ie covering anything from simple components to final products). Even without final assembly operations necessarily being delocalized, this would create a situation where today more than 50 per cent of all value added is ‘exported’ elsewhere than the market where a good is consumed, even where hi-tech products are involved. Commercial trade would skyrocket at the same time as supply chains atomized – increasing transportation distances for basic industrial components and product modules alike.

Financial market liberalization further extended the movement as the free circulation of capital helped create polymorphic groups that would link and delink depending on trends that could be completely disconnected from the real economy. The end result was the disappearance of entire swathes of traditional manufacturing from the West. Textiles, for instance, would go entirely offshore, followed by other basic consumer goods such as toys and simple electronic products. The factory-free Fabless approach made famous by Serge Tchuruk when he ran Alcatel became very fashionable in Europe, raising questions as to why any company should ever produce low-margin goods locally in a sector subject to constant renewal. The value of a company would increasingly be deconnected from the value of its manufacturing assets, whose location depended more on Global North versus Global South labour cost differentials.

The dominant strategic model – reflecting both the race for growth (to cover overheads) and supply chains’ fragmentation (to take advantage of global labour cost differentials) – would enable both economies of scale and value creation through the optimization of global operations. This type of growth could occur either organically or via acquisitions, involving in both cases a race for size materializing in an asset aggregation strategy. Little by little, actors in the different chains would become more interdependent, with the interest of each being to protect their margins by achieving excellence in their core businesses.

Toyotism, a providential model

Consumers, shareholders and employees became increasingly demanding. Consumers wanted greater customization, responsiveness and timeliness in the products they bought, putting greater pressure on supply chain logistics and factory responsiveness alike. Shareholder structures also evolved, notably following the emergence of huge pension funds. Short-term return imperatives tightened at the same time as people became more risk averse, squeezing companies whose response was to operate with less working capital. Lastly (and reflecting other changes in society), employees in this 3rd Age of Industry were increasingly demanding that their ideas be listened to, and that they have opportunities for professional development.

The net effect of these three phenomena was to induce most industrial companies to question their own models. The early years of automation and robotization helped reduce the number of arduous and repetitive tasks that companies performed while partially satisfying their short-term profitability imperatives. A number of companies also began to implement enterprise resource planning (ERP) systems enabling different functions to share data sourced either externally from the marketplace or internally from their global manufacturing processes, all with a view towards making their supply chain more robust.

Despite all this, the 3rd Age of Industry lacked an organizational model capable of facilitating the management of large companies and complex supply chains without this costing too much in working capital or end-user service quality terms. This explains the emergence of a system whose operational principles broke with the Taylorism that had guided the preceding era. The new system, first known as Toyotism – later referred to as lean manufacturing – responded to the three aforementioned challenges by promoting a value-added concept that put the end user at the heart of all internal practices. It was a concept based on three underlying principles. The first was ‘lean flows’ piloting, responding to the need to decrease working capital by reducing inventories. The second was the quality monitoring system, based on the idea that things be ‘right first time’ to guarantee excellent quality service at the lowest possible cost. Third, participative management systems made it possible to fully leverage the intellectual firepower at a company’s disposal, including its operatives and not just executives or engineers.

In the 1980s and 1990s the world began to discover a Toyota model that for a period of 40 years penetrated all parts of the economy and enabled considerable progress in cost, production time and product quality terms. In most sectors today the model has remained more or less operative since, and the challenges associated during the 3rd Age of Industry – with consumer, shareholder and employee demands – still apply. The question then becomes why things should change.

Limitations of the model

Like any transition between two worlds, change cannot be enacted from one day to the next in the way that a light switch is turned on. For a certain time at least, benchmarks from both worlds will overlap. Thus, even as benchmarks associated with the 3rd Age of Industry largely continued to apply, several major changes began taking shape, including an awareness that grew more or less rapidly depending on the sector of activity and each industrial actor’s trajectory.

Among all these changes, the most striking is undoubtedly the rise of social networks enabling instantaneous access to product, brand and service information as well as a viral propagation of information. One consequence is customers’ new habit of demanding end-to-end transparency from all parties involved in an industrial chain. This was a problem for the model associated with the 3rd A...