Telsa's Blue Ocean Strategy: A Study on Creating Uncontested Market Space

This assignment discusses the Blue Ocean Strategy and Red Ocean Strategy in business innovation. The Blue Ocean Strategy is about creating a new market space by innovating and making customers irrelevant to the competition, whereas the Red Ocean Strategy is about competing with existing competitors in a defined market space. Tesla is an example of a company that has adopted a Blue Ocean Strategy by focusing on innovation and creating a future market and customer base. The assignment also discusses Porter's five forces framework, which analyzes the intensity of competition in an industry. The five forces include the threat of rivalry, bargaining power of customers, bargaining power of suppliers, the threat of substitute products, and the threat of new entrants. An analysis of Tesla using this framework reveals that the company operates in a highly competitive market with moderate customer bargaining power, moderate supplier bargaining power, and a moderate threat of substitute products.

Running head- Innovation
Innovation

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Innovation
Executive summary
This study is conducted on Telsa Motors to get insight into the company's background, its
competition, and the innovation. The study covers the S-Curve of the company, an analysis of
product lifecycle, innovators dilemma model, blue ocean strategy and red ocean strategy and
Porter's five forces in respect of Telsa Company. The study reveals the position of Telsa in the
market and its strength against competitors.
Introduction
Telsa was founded by a group of engineers in 2013 to build electric cars and reduce the problem
of emission at minimum possible level (Nykvist et al., 2015). They had a mission to build a car
which is faster, better and fun to drive than other cars. The company's motto was to build a car to
cut the use of fossil fuels and save the environment from emission and make a better future. The
Headquarter of the company is in Palo Alto, California, the US and the CEO of the company is
Elon Reeve Musk. The total revenue of the company was US$7.0 billion in 2016, and the net
profit was US$-674.3 million. The value of total assets of the company was US$22.66 billion,
and the total equity was US$4.75 billion in the same year. Currently, 33000 employees are
working in the company. There are two subsidiaries of the company that is Solar City and Telsa
Grohmann Automation. The company has main categories,
i) Model S (sedan)
ii) Model X (Sports Utility Vehicle)
iii) Model 3, and
iv) Energy (solar energy)

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Innovation
The vision statement of Telsa Motors: “to create the most compelling car company of the 21st
century by driving the world’s transition to electric vehicles.”
The mission statement of the company: “to accelerate the world’s transition to sustainable
energy.”
Innovation
Innovation is a tool in the hand of the entrepreneur to develop a different product or process than
the existing one and serve the customers in a better way and make them satisfied. Innovation is
the need of time. Innovation may be of different types,
i) Product: Develop an entirely new product or modify the existing one with significant new
characteristics.
ii) Process: Develop a new effective process of production to consume less time in
production and deliver quickly to the end users.
iii) Organization: Establish an organization based on new methods of business practices and
relationship with other organizations.
iv) Marketing: Marketing of product required promotion of the product, packaging, and
designing of the product. Develop an innovative way to design, package and promote the
product.
S-Curve and Innovation
S curve shows the adoption of innovation. It measures the ability of a company that how fast
company is adopting the innovation (Cohan, 2017). This curve helps in describing the standard
life cycle of innovation. The s curve helps in predicting the volume of production that requires a

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huge amount of investment (money and resources) in the beginning. There are four stages of S
curve
i) Startup: In this stage of S curve product or service fight for survival in the market. The
product in this stage requires funding because products in this stage do not yield a profit.
ii) Growth: when the product is accepted by the customers in the market it started growing
in the market and reached the stage of growth. Sometimes products do not survive in the
first stage and reach the decline stage without completing its full life cycle. This type of
products are a failure and needs unique features or ideas of marketing the product. In this
stage, profit margin increases significantly.
iii) Maturation: After the growth stage of S curve, products reach the next stage that is
maturation stage. With the growth of the product, new competitors enter the market to
gain profit in the market. Hence the profit margin declines in this stage, but it remains
profit oriented product.
iv) Decline: in this stage product faces the reduction in market share and profit margin
decreases. Here product needs a significant strategy of marketing. The unique idea of
promoting the product and also modification with unique features is required at this stage.

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The production of Model 3 is boosting up efficiently. The sale of model 3 has been increased,
and hence it has reached the stage of growth and company is expecting a significant increase in
profit margin. Model 3 seems like a cash cow for the Tesla motors. With the growth in the
production and sale of model 3, Tesla is ready to milking the cow.
Product lifecycle
When a product is introduced and launch in the market, the success of the product depends on
the taste and preference of the customer and the ability of the product to satisfy the needs and
wants of the customers (Bartlett et al., 2013). If it is good enough to satisfy the needs and wants
of the customer, then the product reaches the growth stage from the introductory stage of life
cycle. After that it reaches the maturity stage and when the demand for the product declines it
reaches the decline stage. This is a full lifecycle of the product.

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2012 2017
Time
Model S of Tesla
Model S is in the growth stage of the product lifecycle. This model has achieved the rank of the
bestselling electric car in America. Electric cars are widely accepted in America and sales of
Model S are rising significantly. The segment of the consumers who are interested in electric
cars is rising. The company is planning to increase the production of Model S and increase its
distribution channel to meet the increased demand all over the globe. The quality of model S
(safest car) is maintained, and the price is also kept low to attract more consumers.
Innovator’s dilemma model

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Technology is one of the important factors for the growth and success of any company.
Technology is necessary to be in the market. Technology changes very rapidly. Every day every
night technology is being advanced (Christensen, 2013). To be in the market, every firm needs to
cope up with the change in technology. If any firm is lacking to cope up with the changes in
technology, it will be out of the market very soon. Many companies have failed due to the
change in technology and their disability to cope up with those changes. Even well-developed or
established companies have failed due to the change in technology although being involved in
innovation process and investment.
Clayton Christensen developed the model of innovator's dilemma and wrote about the success
and failure of the company. He identifies two types of technology,
i) Sustaining technology: It shows the improvement in the performance of the products.

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Innovation
ii) Disruptive technology/radical innovation: Disruptive technology is the main cause of
failure of many well-established companies. It brings unique attributes in the market that
had not been present in the market before. It brings values to un-demanded market or the
new customers. Disruptive technologies are more convenient to use and cheaper, simpler
and smaller that attracts more consumers.
He also identified three factors that cause failure of well-established firm,
i) The speed of technological changes or progress
ii) Disruptive technology and sustaining technology
iii) Financial structure of the company and customer
No, Fords and GM do not sale cars directly to the customers.

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Telsa innovation curve
Telsa is producing Model X and delivered 10000 of Model X in the first half of 2017. This
model is in maturity stage because the sales of model X are now constant and no significant
growth has been registered. The profit margin of model X is also constant. These two evident
prove that model X is in maturity stage.
Telsa is manufacturing electric cars that need batteries and solar energy to run. There is no need
of fossils fuel to run these cars. Hence it requires the production of batteries or solar energy.
Therefore, after introduction of electric cars, it is unique time to manufacture batteries/solar
energy.

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It is radical innovation because it is new idea in car industry and also Telsa is providing low-
priced car that is user friendly or easy to use. It also helps in maintaining environment and save it
from pollution. Hence it is a radical innovation.
Telsa's innovator's dilemma
Model S of Tesla has a significant cost advantage over competitors in maintenance, environment,
and energy. The cost of the model S is slightly less than competitors. Economies of scale of
manufacturing and gig factory help in dropping the price steeply. Telsa is using disruptive
technology to attract more consumers. Although the consumers of electric cars are increasing in
numbers, Telsa is trying to capture the market by lowering the price of its cars. Telsa has come
up with the unique feature of the car market. Its motto is to reduce emission level to the
minimum possible level. With this feature, Telsa is attracting more customers who care about the
environment for the better future. Telsa is focusing on sustainable development and tries to save
the environment for the next generation. It has introduced the safest car in the car market. Model
S of Telsa is ranked first for the safest car in the world. This is also an attractive feature to attract
more customers. The customers are more concerned about the safety and Model S of Tesla is
fulfilling this need of the customers.
Blue Ocean and Red Ocean Strategy
Blue Ocean strategy helps strategists of innovation to assess their current strategic states and
desired future states of strategy (Kim et al., 2014). This strategy helps in making a place in the
market that helps in making competitors irrelevant in the market and provide new value to the
consumers while reducing cost. It is all about minimizing the risk or threat of competition and
maximizing the opportunities by exploring the new areas. The blue ocean strategies formulation

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and execution require distinct principles, and it has its own set of principles that help in making it
distinct from competitors. Blue Ocean strategy has several characteristics,
i) Value innovation:
ii) Innovation and creativity:
iii) Create a market:
iv) Develop future demand:
v) Create future customers:
vi) Non-existent industries:
vii) Undefined market space:.
viii) Unknown competitive rules:
ix) High profit and growth opportunity:
Red Ocean Strategy believes that it is no anyway for the company to achieve competitive
advantage in the market. If one company has to gain a competitive advantage, it must outperform
its rival to gain maximum share in the market. The red ocean company does not believe in
innovation to capture the market. These are the characteristics of the red ocean strategy,
i) Existing industries
ii) Defined market space
iii) Defined industries boundaries
iv) Known competitive rules
v) Low-profit growth opportunity
vi) Competitive advantage
vii) Low cost or differentiation

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viii) Beat the competition
ix) Exploit existing demand
x) Focus on existing customers
Telsa is not using red ocean strategy. It has come up with innovation and focus on creating future
market and customers.
Porter’s five forces
Porter’s five forces: A set of tools to measure the intensity of competitiveness (Dobbs, 2014). It
helps in identifying the competition of a business and scope of being profitable in the market.
i) Threats of rivalry (Strong): this element of five forces measures the impact of
competition in the industry. Telsa is operating in a highly competitive market. Telsa is
highly inclined towards innovation and brings its product with unique feature and
promote that aggressively in the market. It weakens the intensity of competition for
Telsa. But there are other players exist in the market to make competition tough for the
Telsa. Therefore, Telsa needs high consideration on formulating a strategy to deal with
competitors.
ii) Bargaining power of customers (Moderate): this element of five forces analyzes the
influence of customers on the company. The customers are direct factors which
determine the sales revenue of the company. High demand for the electric cars in the
market paves the way for Telsa. The bargaining power of customers is moderate for the
Telsa's car because of its demand in the market. The availability of substitute of Telsa is
moderate in the market which is helpful to make bargaining power of customer moderate.

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iii) Bargaining power of suppliers (moderate): Suppliers are those who supply the raw
materials for the company. If the number of the supplier is more the bargaining power of
suppliers would be less and vice-versa. Suppliers influence the company's environment
by affecting the availability of raw materials that the company needs. Telsa's suppliers
have limited control in the sale and distribution of their product, and also they are less
forward integrated. Some Telsa's suppliers sell their material to third parties and another
sale directly to the company. The Telsa’s suppliers are not big in sized; therefore they
have limited influence on the company.
iv) The threat of substitute products (moderate): this element of five forces shows the
availability of substitute product in the market. If the substitute product is more, the threat
will be high and vice-versa. The substitute product for Telsa is moderate in the market,
and many substitute products are not meeting the customers need. Therefore, Telsa does
not pose much threat from its substitute.
v) The threat of new entrant (Weak): this element shows the opportunity to enter the market
for the new players. If the existing players are making a huge amount of profit, new
players will enter the market. But Telsa initially faced loss and still not the much
profitable company. That is why there is little scope for the new players to enter the
market. And the development of a brand requires a huge amount of investment.
Therefore, there is little threat from the new entrant to the Telsa.

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References
Aithal, P. S., Shailashree, V. T., & Kumar, P. M. (2015). Application of ABCD Analysis Model
for Black Ocean Strategy.
Bartlett, D., & Twineham, J. (2013). Product Life Cycle. In Encyclopedia of Corporate Social
Responsibility (pp. 1914-1920). Springer Berlin Heidelberg.
Christensen, C. M. (2013). The innovator's dilemma: when new technologies cause great firms to
fail. Harvard Business Review Press.
Cohan, P. S. (2017). Introduction. In Disciplined Growth Strategies (pp. 1-20). Apress.
E. Dobbs, M. (2014). Guidelines for applying Porter's five forces framework: a set of industry
analysis templates. Competitiveness Review, 24(1), 32-45.
Kim, W. C., & Mauborgne, R. A. (2014). Blue ocean strategy, expanded edition: How to create
uncontested market space and make the competition irrelevant. Harvard business review Press.
Nykvist, B., & Nilsson, M. (2015). Rapidly falling costs of battery packs for electric
vehicles. Nature Climate Change, 5(4), 329-332.