Fast & not-Precipitous: planning for unintended consequences

I recently read that German software company SAP will no longer source its company cars from Tesla due to unpunctual deliveries and price fluctuations.?

The list prices of its cars fluctuate more than those of other manufacturers, making them a risky asset to hold.

SAP’s decision follows that of other companies such as car rental giants Hertz and Sixt.

The consequence was that Tesla share price dropped quite notably.?

And so far nothing new, one could even say: who cares?

Well, bear with me. Let’s look at these events as System Thinkers and see if we can learn something.

Three years ago, Elon Musk set a very ambitious target of 50 percent growth.

In January this year Elon Musk said that high interest rates had increased monthly payments for Tesla's cars, making them less affordable for consumers.

So if we sketch a very simple system model to see how these element are linked, it could look like this:

• The gap between growth targets and actual growth, compounded by higher interest rates, led Tesla to lower its prices to capture more market volume..

Expected consequence:

• Lower price → higher sales → stronger barriers to new entries in the EV market.

Instead what happened:?

• Lowering the price causes more variability in the cost to own or lease a Tesla AND eventually causes to lose some big customers.

It’s not for me to say if Tesla did good or bad. The question I would like to tackle today is:

When making a strategic plan, how can we prepare our organisation for unintended consequences?

Taking what I learned from the recent Tesla news, I’ll share 3 considerations to make before rolling out a strategic plan.

#1 How do the other players in the system measure their success?

We don’t exist in a vacuum. Everything is connected in a system.

Knowing how other players in the system measure their success is vital to understand why they act in the way they do.?

I’m thinking of customers, but also suppliers, players in adjacent industries, …?

This should not be a guessing game, and joining forces with customers and strategic suppliers is always beneficial, to gain a reliable picture of the system.

#2 How do the other players in the system define their problem?

Once you have finalised your own model of the system, formulate problem statements from the perspective of the other players.?

In this way you can understand what is important for them, and where they are likely to focus their efforts.

Here again a strong partnership with customers and suppliers to test your assumptions is highly useful.?

#3 Bringing it all together

Now update the model: what can happen when you try to execute your strategy and change the system?

Are there any “unintended consequences” that your strategic plan will trigger?

What mitigation can we put in place?

And most importantly, rethink your strategy from the perspectives of customers and suppliers: How can we make each other more successful?

Conclusion

Nobody has the crystal ball and can effectively predict what will happen in the future.

It would be naive to think of being able to create a truly complete model of a system... But models can be useful also because they remind us that we are not alone and that every action has its consequences.

We need to act fast to be able to grow in a fast-paced market. We should definitely not be too precipitous.?

We need to join forces with others to gain a better understanding of the system from their perspective and make mitigations for potential unintended consequences.

For further reading

Musk Waves Goodbye to Tesla’s Growth Targets

SAP removes Tesla from list of company car suppliers -Handelsblatt