Tesla & Value Management: Part 2: Value-Led

Last month, Chris wrote an article about a series of podcasts he’d come across about Tesla (covering everything from HR to product development, via finance, strategy and even catering).

Whilst billed as “Agile @ Tesla” – and “agile” is a recognised discipline in its own right – Chris felt from the podcast series that:

“Tesla absolutely embody and display everything we’re saying about being Complexity-Aware, People-Centred and Value-Led. In this way, they may well be the first organisation to achieve and be driven by simplicity the other side of Complexity.”

As that’s a bold claim, he then invited readers to:

“Read around some of the concepts in this article, listen to the podcasts and then judge for yourself: are Tesla the first company to fully embrace Value Management via the Things That Matter?”

Having taken up that invitation from Chris, I’m sharing my thoughts with you in this three-part series, continuing with what drives Tesla (pun admittedly intended).

How Tesla Really Are Led By Value Management

As Chris noted in his original article:

“As far as I know, Elon Musk and his team haven’t read this website and don’t use terms like “Value Management“, “Things That Matter” or “Complexity-Aware”.”

Moreover, the podcasts are specifically introduced under the umbrella of “Agile” which, whilst often associated with a lot that’s positive, is often a label for a mix of truths and fallacies.

So are Tesla really a “Value Management” company?

“Agile” vs “Value”

To begin with, the podcasts themselves make the point that “agile” isn’t the focus, with Episode 10 saying that:

  • What Tesla’s doing … it’s the better agile, it’s the new agile, it’s the real agile… it works. It’s making innovation faster and cheaper than anyone else…. and that’s my definition of ‘works’.
  • It’s clarified a lot of the Agile that doesn’t work. Agile became a really profitable buzzword…

So, we don’t need to worry about the “agile” label.

But, far more important is how the podcasts reveal how Tesla is ruthless about articulating Value – in its fullest sense, and at every level – and then using that to guide all its practices and decisions.

This is what drives Value Management, and it begins in Tesla at the very highest level.

Being Value-Led: the Things That Matter

We learn in Episode 1 that the original “masterplan”, as it’s known at Tesla, was as simple as:

“Build an expensive electric car. Use any proceeds from that to build a less expensive electric car. Use any proceeds from that to build an affordable electric car… Meanwhile, do that while scaling out clean energy generated from the sun and make it available to everyone. PS Don’t tell anyone”.

Everything that Tesla then does is “constrained” and shaped by that vision, and that begins with the way that the nature of Value – something else we’ve got a lot of relevant things to say about – is far more nuanced than in traditional companies:

  • Episode 3 describes how “Profit isn’t what wins.” and that, for Tesla, only innovation matters, which confuses markets: “The financial markets are used to saying “I need to make a mathematical model of your company so I can predict your future financial performance: that’s the basis on which I’ll trade”. Whereas that’s a flawed basis for trade. Your only basis for trade is how quickly you’re innovating and how meaningful are the innovations. That’s it“.
  • Episode 5 explaines that whilst most executives focus on short-term growth, the ambition at Tesla is entirely different: indeed, the aim is zero profit on the grounds that, for Tesla, innovation is everything, and 100% of profit should be re-invested in that innovation.
  • Episode 10 explains how “The test of an agile company is: in a changing environment, you should have a competitive edge“.

This combination of Tesla’s high-level purpose and its understanding of what Value means in its context – innovation above everything – is the root of what, in our terms, are the Things That Matter: what shapes, clarifies and guides all activity and that sets aside everything else:

  • Episode 3 describes how context-switching is expensive and therefore ruthlessly controlled, hence why there is no Tesla Racing, no Tesla plan or Tesla boat – only cars – and even the colour palette of cars is limited to optimise focus.
  • Episode 10 describes how the methods used are subservient to the results, and in particular how “agile” is not the goal: “You need to go in build a better car faster than they’re doing it now. If you can do that, you’re agile!
  • Episode 6 talks about how, within these guiding principles of mission and Value, people choose themselves between possible options as to what will make the maxium possible contribution.

Putting the Things That Matter Into Practice

And it’s the Things That Matter that power everything else we described in Part 1 about Tesla’s approach:

  • It’s these that drive the Measurement we describe, indicating what metrics are created and monitored: Episode 2, for example, talks about how everything surrounding the pool of money, the burn-rate and the impact on mission is automated with real-time numbers, so that people know how they’re performing in the moment in terms of capital efficiency.
  • The Things That Matter are expressed in the apps that employees use and in the role descriptions they are able to take on, providing the new form of Control.
  • Because those at the front line are fully versed in the Things That Matter – and provided with powerful real-time information about them – they are empowered to embody new forms of Leadership.
  • It is around Things That Matter that Teamwork operates, both positively – in that teams form and reform them – and “negatively” in that what emerge as context functions are given to separate, dedicated teams that can help preserve the principal focus on innovation.

We can conclude that Tesla don’t just “look like” a Value Management company in their practices; they are – indeed – fully led by Value, too.

Value Management Really Does Work

But is this just an interesting experiment? Does it actually work, and does it actually work better?

Well, in short, Episode 5 of the podcasts answers those questions with: no and – emphatically – yes:

“If you add up every other car company in the world, it’s worth the same as Tesla or less… in terms of market cap. We often forget that: how radically successful and completely unusual that company is… and that’s one of the five Musk companies. Musk now employs 110,000 employees. By the way, Bosch – a supplier for Daimler, primarily, and some for Tesla – has 390,000 employees… so it’s also how efficient Tesla is. They have about one quarter of the number of employees of one of the suppliers to Daimler – not even Daimler – and they’re worth, what, 6 times… 10 times more than Daimler today? So, yes, how do you have this radically successful financially company that’s sold out until next year right now… and they’re ramping production faster than any company ever has in manufacturing history… and they still can’t meet demand. That’s how absurd this is.”.

But whilst that sounds great for Tesla, what does it mean for everyone else? What if you’re not in the car industry? What if innovation isn’t the only or main priority to you?

How far can Tesla be considered a general example to everyone?

That’s what we’ll look at in Part 3.