A Work Project, presented as part of the requirements for the Award of a Master’s degree in Management from the Nova School of Business and Economics.
BUSINESS IN PRACTICE BREAKING THE STATUS QUO:
A VIRTUAL JOURNEY THROUGH ELECTRIFICATION
JOÃO MIGUEL SANTOS DE SOUSA LOPES
Work project carried out under the supervision of:
João Miguel Nogueira Baptista
06/10/2022
BREAKING THE STATUS QUO:
A VIRTUAL JOURNEY THROUGH ELECTRIFICATION
Abstract
The following report is organized in two sections: first about a personal reflection on two critical incidents that occurred during an immersive simulation, one where I go against my beliefs, being challenged I needed to create new methodologies and other where I needed to change my behavior to achieve a better performance; second I discuss the performance of Mercury, a fictional company managed by myself and five other colleagues, where I focus on the strategy, operations and human resources functions and how they helped the company to achieve a full electric portfolio of vehicles during a simulation of six years.
Keywords: Electrification, Change Management, Strategy, Operations, Human Resources, Car Manufacturer, Shared Leadership, Company Simulation.
Acknowledgements
I want to thank my family, my friends, my working group, the professors and everyone that I have crossed with and helped me become the person I am today.
This work used infrastructure and resources funded by Fundação para a Ciência e a Tecnologia (UID/ECO/00124/2013, UID/ECO/00124/2019 and Social Sciences DataLab, Project 22209), POR Lisboa (LISBOA-01-0145-FEDER-007722 and Social Sciences DataLab, Project 22209) and POR Norte (Social Sciences DataLab, Project 22209)
Personal Reflection
On this part of the essay, I will reflect on two personal incidents that I felt have changed me as a future manager and as a member of a team. For each incident, I will first describe what happened, what I was thinking and how I dealt with each situation, in similar past experiences and during the simulation. Then I summarize some scientific evidence that I collected so that I can analyze the situation or possibly justify what I felt during those situations.
The first incident is about the shared leadership that was present on the simulation. This concept goes against my previous beliefs and my life experience, having always believed in the hierarchical leadership, with one single leading person. Here, I describe how I accepted this leadership, first forced and then as a new methodology to make the best out of it. For the analysis, I searched for evidence of the benefits of this kind of leadership, but also for other side benefits that I felt came from the experience of this leadership structure. This is a situation where I was able to try something new and I felt that my wellbeing improved.
The second incident is about how I deal with stressful situations after losing my temper. In a situation, the team did not take my advice, which ended up having negative impact on the company performance. On previous situations, I always acted in a way that I felt having negative impact on team performances and this time I managed to act in a different way, in which I felt that the performance did not decrease, meaning that improved in comparison to what I was used to.
First Incident: The guiding stars Event
Coming from a background in sports, first as an athlete and further specialized with a bachelor in sports science, becoming a coach, but also growing in a family where two members belonged to the armed forces, I have always been exposed to a hierarchical leadership. This leaded to me believing that this was the best system and that there is always a necessity for someone to be the leader, who ultimately took decisions.
At a personal level, I am always chasing the best of myself and do everything at the maximum quality that I can provide, which is not always true on the academic level for everybody. For this reason, I assumed frequently the position of a leader in my group works to be sure that I was comfortable with the works that were submitted for evaluation.
On the self-assigned leader role, for group works, usually I defined deadlines for everybody, and closely monitored everyone and if I felt that someone was not doing what was expected, I tried to motivate them. In extreme cases where I was not able to motivate someone, and the group could not reach an agreement, I tended to do their part of the work after completing my tasks. This behavior generated some mixed feedback from my peers and friends, being seen as someone trustworthy but sometimes too pushy and someone that did not understand the moments to take a break.
When I started this program, I was faced with a double challenge to my beliefs, not only the group did not have a unique leader, like a CEO, neither I possessed the full authority to take decisions by myself on my department, since I was placed as co-director of innovation. During the first day of the simulation, we were instructed that we could not change our roles, so I was prohibited to assume the CEO role, as I usually would do. When I entered in the simulation for the first time, I quickly realized that it would be impossible to control the entire company, as I
First Incident: The guiding stars
did not have accurate information from all the departments in every single quarter, on my screen. I was left with the only option of putting my beliefs on the side and accept the shared leadership.
The following days were extremely important to build confidence on my team and on their skills and unwind some of my preoccupations with the team dynamics. Nevertheless, the second time we entered the simulation, I felt that the team was losing to much time discussing every decision, with everyone, even the ones with minimum impact on the company as a whole. To solve this problem, I proposed the creation of a list of principles for each department that could guide our decisions. Every member was present, and we decided on the list together (Exhibit 1) and that list replaced a superior member, since in moments that we needed to decide faster or if someone were insecure about his decision it could look up to the list and find the correct path. The list created a great harmony in the team, who agreed on the usefulness of it, since everyone was acting under the same line of thought, based on principles that everyone created and agreed.
On the peer assessment, my worst skill turned out to be keeping the team on track (4 out of 5, as seen in the Exhibit 2), which did not come as a surprise, due to my efforts of not being the bossy person on the group, come to be the same value as I have attributed to myself.
Food for Thought
After doing a quick research on Google Scholar about the hierarchical leadership, at 10 of July 2022, I soon realized that my beliefs about leadership were outdated. Every single article, on the first eight pages, sorted by relevance, were either comparing hierarchical leadership to other forms of leadership or were about the transition to these new forms of leadership. I did not manage to find one recent article (later than 2019) about the benefits of hierarchical leadership.
First Incident: The guiding stars
Trying to understand why this mentality shift happened, I first tried to find a definition of shared leadership. Pearce and Conger (2003) defined it as “a dynamic, interactive influence process among individuals in groups for which the objective is to lead one another to the achievement of group or organizational goals or both”. Then, I needed to understand if there was a trigger to promote the shift and understood that the current fast changes in the world are also changing dramatically the type of challenges that the managers are faced with, requiring different perspectives and explanations. To fully understand the problem and decide which path to take is an impossible task for one single leader, creating the need for shared leadership, which has a better efficiency, when compared to hierarchical one (Fitzsimons 2016). The shared leadership allow two or more different leaders to look into the same problem, and potentially reach completely different solutions that could be complementary to each other, due to their different mindset and skillset (Goldsmith 2010).
Although the studies about this thematic are relatively recent, shared leadership is not a novelty and there are some reports since the beginning of civilizations, of structures based on it (Kocolowski 2010). D’Innocenzo, Mathieu, and Kukenberger (2014) did a meta-analysis where they conclude that the adoption of shared leadership had a positive relationship with the performance of teams. On a more recent study, Gu, Liang, and Cooke (2022) showed positive effects on the creativity and motivation of employees on China, where they still live in a paternalistic society and the hierarchical structures are the norm, revealing that even against the people beliefs, like myself, this leadership would offer benefits.
The constant share of ideas and knowledge with the group, caused me a special fear of not being good enough for the tasks, revealing my imposter syndrome. This syndrome was firstly described in 1978 by Clance and Imes, as an intellectual behavior of high achieving women that felt not bright enough, and who thought they were, have been fooled by them to believe in it. This syndrome has been studied since then and, although we do not possess as much
First Incident: The guiding stars
knowledge as needed, we could conclude that is not an exclusive phenomenon of women, being gender independent and having a prevalence as high as 82% on the entire population (Bravata et al. 2020), being present on the majority of students (Oliveira et al. 2022). Both meta-analysis (Bravata et al. 2020; Oliveira et al. 2022), suggest that this syndrome usually trigger stress, anxiety, depression, lower job performance and burnout.
The burnout was defined as “a syndrome conceptualized as resulting from chronic workplace stress that has not been successfully managed” (World Health Organization 2019), which usually lead to worst job performances and other complications.
I have the tendency to do the tasks of my peers, as previously explained, often resulting in excessive working schedules, being another possible trigger to burnout (Edú-Valsania, Laguía, and Moriano 2022). This associated with the imposter syndrome, make it mandatory that I start taking steps to mitigate the risk of developing this phenomenon.
Communication skills have been referred as being one of the most important skills in management roles (Djavanshir and Agresti 2007), sometimes being more important than technical skills (Ceptureanu et al. 2017). Even on a world that is developing towards being digital, the communication skills continue to be one of the main competencies that managers should have (Ribeiro, Amaral, and Barros 2021).
Reflection and takeaways
In practice, I felt that the shared leadership allowed me to have challenging debates with my peers, leading me to believe more in myself. I was able to spend less time than I firstly anticipated on tasks, giving me more time to enjoy and further develop my relationship with my peers, ending up developing my communication skills (usually referred as a negative aspect of me), being pointed as one of my strengths from this group. Nevertheless, the most positive takeaway of this event, is that everyone in this kind of leadership felt important for the ultimate
First Incident: The guiding stars
success of the company, as if every single person were a guiding star to the success of the group, creating an incredibly positive environment for everyone.
Looking back to this incident and its outcome, I clearly understood that I need to hear more the people that surrounds me. As I previously mentioned, it was not unusual for someone to point out that I always stressed to much about my tasks, saying that I always needed to be perfect and that I needed to be less in control of everything. Those people also kept alerting me, that my behavior could end up in some psychological problems, like the scientific world pointed out.
This experience allowed me to live on a stressful situation, with time constraint, while enjoying those moments and achieving the same success. I was able to develop my communication skills, something that I always wanted to improve but quickly put them on the side to improve the results, now knowing that those two goals are not mutual exclusive.
I think that my solution to accept the shared leadership, doing the list of principles with all the peers, was important, opposing my previous professional experience, since I always made jokes about that when my previous boss presented a similar tool. Even in talks with one of the members of the group, that also had a similar behavior on his past experiences towards a similar tool, he first thought that I was losing time when I proposed the idea of making the principles list. In the end, he also understood the importance of having principles and the reason why the companies present them to the stakeholders.
Having completed my reflection with the simulation and the new scientific information about this topic, I am fully convinced of the benefits that the shared leadership could bring to a company. It was not an easy task to me, doing something in a different way of what I was used to, but a good note to my future self is to continuously challenge my beliefs, since they could be the origin of some problems or barriers to improvement.
Second Incident: Do not be the fire that burns your team Event
One of my main characteristics is that I am usually a calm person, that do not lose my composure even in stressful situations. But when I lose my temper, I quickly show my weaknesses, raising my voice, being aggressive and bossy, ultimately deteriorating the performance of teams. Being aware of this negative behavior, I wanted to take action toward improving this conduct.
Being the co-director of innovation, I needed to discuss with my partner first, and then propose to the team which was the best investment to do. This task was somewhat hard to me as we did not have enough information about the available investments and how those would impact our cars. Due to that, we did not invest as much on autonomous driving, as it was more expensive, than connectivity and did not apply to green bonds as the investments in electrification.
On the beginning of year 3, we only had left two investments in autonomous driving, and on the previous day, we had agreed that we would do it as quickly as we could. Once we entered on the simulation, the team decided to change the strategy and opted not to invest on the first quarter of that year. Although I made some pressure to do it, my co-director also accepted the new strategy, and I lost the argument. When we pressed the button to go to the next quarter (from 13 to 14), my screen showed “Changed Buyer Preference – The buyer preference for electric drives and autonomous driving has increased significantly”, I was completely out of my mind, since the team decided not to follow my advice, not investing in the previous quarter, and at that moment, we were not prepared for the market demand.
Instead of start blaming everyone and be counterproductive, I looked to the clock, and realized that we had completed the previous quarter 15 minutes earlier than our time margin. So, I told to the team that I needed a break and go get water. During the break, I started thinking to myself
Second Incident: Do not be the fire that burns your team
that this situation was also my fault, the directors of innovation could have made more pressure, since the beginning, to invest on autonomous driving, because even if we invested on the previous quarter, we would not have the technology available at that time.
When I got back to my seat, instead of shouting with everyone, as I would previously do, I only said that I was sad because I felt that had not prepared the company as I should and was feeling that had failed them. This way, I prevented losing time on a discussion that would have no effect for the future, since we could not travel back in time and redo our decisions. Being a completely different outcome of what I am used to, I should further develop this methodology to calm myself whenever I lose control.
Food for thought
Maxwell (2002) wrote as the title of his book, “Teamwork makes the dream work”, but that is not the easiest thing to achieve in some situations. When working on teams, people could have different opinions and ideas, due to their religion, ethnicity or political views, that sometimes clash with each other (Mathis and Jackson 2011), creating conflicts in team dynamics. For this reason, it is important that every member take action to prevent conflict and when it is not possible, choose the best pathway to solve it.
There is not a perfect methodology to solve conflicts, and those methodologies are heavily reliant on which people you have in your team. Western cultures seem to prefer active conflict management style, while in eastern cultures that is considered too much aggressive and they prefer to maintain the harmony in the group and avoid conflict (Chen, Wu, and Bian 2014).
During the training sessions of the simulation, I found out that my prevalent energy is fiery red.
From a list of qualities and weaknesses typical of that energy (Exhibit 3), I would highlight, for this discussion, the “being coercive and controlling” and “taking over” characteristics (Hudson, Wylie, and Jones 2009). These are traits that I have already displayed on the previous critical
Second Incident: Do not be the fire that burns your team
incident, and I had previously proposed to change, before the beginning of the simulation. Feser, Mayol, and Srinivasan (2015) point out that almost 90 percent of the effectiveness of leaders come from four specific behaviors “be supportive, operate with strong results orientation, seek different perspectives and solve problems effectively”. These behaviors are hard to follow, for a fiery red person, on a bad day.
We were also presented with the table from Goleman and Boyatzis (2017), that can be viewed in Exhibit 4, in which it appears twelve emotional intelligence traits important for leaders. I picked two: empathy, since sometimes I feel that I am so focused on the result that I forget about the people who are working with me; conflict management, due to the reasons already explained before. I gave up on the emotional self-control, preferring the conflict management, as I believe I am able to remain calm in the majority of the stressful situations.
Haas and Mortensen (2016) state that the teams are becoming more diverse, dispersed, digital, and dynamic, or shorter 4-D teams. With these characteristics, one problem becomes evident, the incomplete information available for some members. There are different origins to this problem, but in our context of the simulation, only the director of each department had the specific information of that department.
People tend to associate conflicts with a negative situation, but conflicts could have positive and negative outputs. Bad conflicts occur when team members feel that they cannot align their ideas, making it impossible to reach any agreement. The importance given to deadlines, pace wise or hitting them, tend to be one of the most common origins of those conflicts (Toegel and Barsoux 2016).
Reflection and takeaways
During the incident, I was a fiery red person on a bad day and there was an outcome that could not be changed, even if each element of the team agreed. This specific incident had all the
Second Incident: Do not be the fire that burns your team
requisites to turn to a bad conflict, spending time on a discussion that would not be fruitful for the company, if I was not committed to not hurt the harmony of the group, as “great teams are built by people who are unafraid to compromise and offer concessions” (Ogbonnaya 2019).
Nevertheless, this situation should not be analyzed just by the result as, in my opinion, there were other small problems that leaded to the incident I described. The fact that I was always discussing the decisions with my partner in innovation, could have created a fake sense of sharing the ideas with the rest of the group when we were just discussing the ideas between both of us and not with the whole group. This could justify why the team did not understand earlier the importance of investing in autonomous driving.
My mindset of avoiding big conflicts could hurt the company in the long term, once some conflicts could have been positive. The group was not afraid of debating the ideas, even if contradictory with the rest of the group, yet we did not develop them as sometimes we should.
This was an important thing to have in consideration, since we were all westerns and an active conflict management methodology could bring better results although, on the overall, I believe the strategy adopted worked well.
In short, team dynamics is a very complex thematic and is dependent on the participants of each group. The actions that I took during the simulation worked well, as the group was very efficient and also to the fact that I managed to stay calm after receiving bad news. This is something that give me hope for the future. I will try to maintain this posture, especially if the groups that I will integrate may be affected by time constraints, and the result of the discussion will not change the result. Nonetheless, I should not be afraid of discussing my ideas on an earlier stage, if I feel that I am correct or not satisfied with the explanation of the rest of the group not to follow it, never letting the fiery red energy burn the group.
Mercury Analysis
Mercury was a fictional car manufacturer, that was managed by a group of six people, where I was included, operating in a simulation. The company had factories in the United States, Europe and China, and sold their cars in those continents. In the fictional world, we had three direct competitors with different strategies, one of them had their portfolio all electric, while the other two had one electric and the rest with Internal Combustion Engines (ICE). Our company was already operating for one year, when the group took over it, and was searching for the technology that would allow having electric cars. The board was composed by one marketing director, one operations director, one human resources director, one finance director and two innovations co-directors (one being me).
The simulation took into consideration the trends that are affecting the real-world car market, like the increasing demand for electric cars from the customers, and legislation about the reduction of CO2 emissions (Gao et al. 2016; Kuhnert and Stürmer n.d.). It was also present the pressure from investors for ‘Environmental, Social and Governance’ (ESG) standards, when choosing which companies to invest in (Wongtrakool, Borowske, and Vallespir 2020).
On this section, I look into the performance of three major departments from Mercury. The analysis was based on academic concepts, that were transmitted to us during academic sessions, later consolidated with external readings and correlated with real life examples. Those concepts are also compared with data from the simulation, that portrayed the seven-year period of Mercury’s operations. At the end, I state the main takeaways and key ideas that allowed me to learn with this experience, through a critical stance about what happened, what went right and what could be improved in the future.
Strategy Analysis Why should we change
The concept of strategy in management is an ever-evolving matter, without consensus in the literature. In 1996, Michael Porter wrote about the concept of strategy, referring that strategy was not all about the positioning of companies anymore, and due to changes in the world, they should focus on developing a system of activities, hard to copy by competitors. Watkins (2007) suggested that strategy is only an element that help on the alignment of a strategic direction traced by leaders. On Watkins’ definition, strategy was not based on activities and strategical positioning but on how the companies allocate their resources to achieve something.
This lack of consensus should not be an excuse for the absence of understanding and awareness towards the company strategy from employees, on an average of 95% (Kaplan and Norton 2005). There are studies showing the benefits of a clear mission statement on the firm performance (Bart and Baetz 1998; Ekpe, Eneh, and Inyang 2015), reinforcing the famous quote attributed to Benjamin Franklin, “if you fail to plan, you are planning to fail”.
On an attempt to have a strategical leadership, Mercury defined clear guiding lines for the strategy and the rest of the departments:
▪ Mission: To achieve sustainability in a sustainable way;
▪ Vision: To be the most desired and practical eco-friendly car, forwarding the world’s goal towards sustainability;
▪ Values: Sustainability, Community, Learning, Integrity and Culture.
It was clear that Mercury needed to innovate to achieve their mission. The product mix was based on high emissions vehicles (Exhibit 5), responsible for more than 22% of the total greenhouse gas emissions of the world (United States Environmental Protection Agency 2022), being the most important measure in environmental sustainability. Furthermore, the company
Strategy Analysis
also relied on a low diversity (either gender, age or ethnicity) workforce. Therefore, they decided to become full electric, reducing the fleet emissions to 0 (Exhibit 6), while improving the workforce diversity (Exhibit 7).
Environment analysis
A company should never be analyzed on its own, but we should take into consideration the relationship between the company goals and the environment opportunities (Porter 1998). One common framework used to understand the environment influencing the company, is the PESTLE analysis. Being a car manufacturer, the following influencing factors where raised:
▪ Political: having factories in different countries, the major factor are the tariffs between them, although Europe is focused on open trading relations with China (European Commission 2020), the same cannot be said from the United States and China that are always changing their tariffs (Bown 2022).
▪ Economical: the simulation did not have the effects of the most recent economic turmoil, neither the coronavirus pandemic nor the Ukrainian war. The only economical factor affecting the company, was the possibility of cheaper financing for sustainable projects through Green Bonds (World Bank 2022).
▪ Social: increasing pressure from investors and customers for sustainable companies (Waldersee and Wacket 2021).
▪ Technological: demand from customers of electrical, fully autonomous and better software equipped vehicles (Gao et al. 2016).
▪ Legal: definition of targets from governments about the emissions of CO2, that manufacturers must meet (Wappelhorst et al. 2021), and diversity quotas for the management board (Ekin 2018).
▪ Environmental: definition of sustainable goals from the United Nations (2015).
Strategy Analysis
Therefore, one industry that could be previously seen as a red ocean, due to the high competition and a stale development, is now full of opportunities and seen as a blue ocean, where firms could focus on electrification, autonomous driving or connectivity, differentiating themselves (Exhibit 8, based on Kim and Mauborgne 2015).
The strategic plan
Since Mercury could not benefit from the first mover advantage (Barney 1991), on electrification, the goal was to heavily invest on the development of new technologies and try to be the first on a fully autonomous driving and connected car. Since those investments required high amounts of money, Mercury placed itself on the productivity frontier (Porter 1996), as low cost – low value delivered player, with cheaper cars than the market to achieve mass sales, that would fund the company research. During the process, the company opened new lines at the factories, to reduce the costs per vehicle allowing lower prices for the customers, while investing on efficient technologies for the factories (like solar panels).
On a later stage, the company managed to be a technological pioneer, being the first to develop a micro electric car and to introduce cars with Level 4 connectivity and autonomous driving, which could justify a change to a high value delivered – high cost and having cars more expensive than the competitors. Since the goal of the company was to be a player on a sustainable transition of the world, and the previous investments in efficiency continued to benefit them with economies of scale and lower energy requirements, allowed Mercury to not raise the prices too much, compared with the outside offer, meaning that everyone could have a sustainable car.
As expected, the value added (Exhibit 9) followed a Kübler-Ross curve. This curve predicts that when a company change its strategy, first it will have a negative impact then a positive one, that offset the negative impact (Kübler-Ross and Byock 2019).
Operations Analysis Starting the engine
Had traced the path that Mercury wanted to go, through its strategy, it was now necessary to understand the reality of the company departments. Operations is usually compared to the heart, in this case the engine, of every company, as this is the department which has the capacity to transform inputs (ideas) into outputs (reality) that, if chosen correctly, will meet the market demands (Krajewski, Ritzman, and Malhotra 2022). Due to the importance of such department, it is not surprising the amount of time and resources spent by companies on its management, frequently hiring the best consultancy firms, like Bain & Company (n.d.) that state “companies with best-in-class operations have a strong competitive edge”.
Using the popular framework of the four Vs (exhibit 10), regarding the strategy traced by Mercury, the company should be as follows:
▪ Volume: high amounts of output. The choice ended up on being made to benefit from economies of scale, since the materials used are similar and the fixed costs are spread among more units (Krajewski, Ritzman, and Malhotra 2022).
▪ Variety: high variety in car types, low variety between same car type. This allowed to manufacture different cars in the same factory, that could drive the production costs down, compared to single factories specialized on only one type of car, using economies of scope (Lei and Goldhar 1991).
▪ Variation: high variation on customer demands. It was not clear if customers changed their needs in cars volume overall, yet their preference for electric cars shifted during the simulation, starting as a non-wanted product, later being the preferred vehicles.
▪ Visibility: very low. Customers could not visit the factories, as it is usual in the manufacturing industry.
Operations Analysis
When the new board took over Mercury, they focused on two main drivers: factory utilization (exhibit 11), being a ratio between the level of output and the theoretical maximum output of the factories (CFI Team 2022); and CO2 emissions (exhibit 12), either of scope 1 (company direct emissions), 2 (emissions associated with generation of energy, bought by the company) or 3 (emissions from the value chain, not included on scope 2) (Bhatia et al. 2011).
The operations were part of a team effort foreseeing the necessity of new cars for the factories, the marketing team that researched the market demands and the innovations team that developed attractive cars for the customers. This allowed to not accumulate unsold inventory.
Efficient journey
With the fleet electrification, car manufacturers are faced with new challenges: the sourcing of new materials, different than the ones previously used, to build the batteries; and the bigger spaces needed in the factories to assemble them.
The electrification challenges came in a particular bad time, since some companies are currently running into construction issues, due to problems in supply chains for building those factories.
Not only that, but after building the huge factories, they need to solve problems of shortages in labor, machine downtime that affect the whole factory and other operational issues, which could put as much as 30% of the added capacity at risk (Hensley et al. 2022).
This scenario, for the manufacturers’ point of view, does not seem very positive if we took into consideration that the industry average of factory utilization, during the last decades, were approximately 80% (Federal Reserve 2022).
In the virtual world, Mercury only needed to focus on the factory utilization, since the other challenges did not have any effect. Although the company expanded all the factories, to achieve higher levels of outputs, Mercury managed to always be over the industry average, in terms of factory utilization, except on one quarter, as seen in the exhibit 11.
Operations Analysis
The high factory usage was achieved with a constant supervision of the days of inventory available for each car. This ensured that it was not necessary to be constantly changing the cars in production, which would mean a two week break in that assembly line operations. This factory utilization is unrealistic in the real world because there are other factors, uncontrollable by the factories, like the upstream delivery capacity, which did not affect Mercury operations.
Greener company
Reducing the amounts of waste produced and having operations more sustainable, would allow the company to increase its longevity and competitiveness (El-Khalil and Mezher 2020), while staying true to their values. This meant not selling something that was proclaimed as being sustainable, while any efforts on that regard were not made, commonly called greenwashing (Netto et al. 2020).
To achieve low emissions, Mercury invested early in green technologies which reduced their emissions on the three scopes:
▪ Scope 1: water consumption reduction ($200m); waste reduction ($400m); ISO14001 / EMAS certificates ($500m).
▪ Scope 2: energy efficiency investment ($150m); install solar panels ($250m); energy management system ($10m).
▪ Scope 3: offset suppliers CO2 ($13,7k monthly, adding to a total of $3,3m); choose sustainable supplier ($10m); co-invest with supplier ($50m).
It is easy to understand that, mainly on the investments for scope 2 emissions, Mercury was investing not only on sustainability but also on reducing costs. Furthermore, the company tried to always produce the cars on the regions where they were most sold. This decision, while having negligible increases in costs, would decrease the transport-intensity of the supply chain, leading to less CO2 emissions (Christopher 2016).
Human Resources Analysis The most important asset
When the new board took over Mercury, it was clear that the company was needing to change its products to become sustainable.
Companies managed by committed leaders to the desired change, have higher efficiency to achieve it (Abrell-Vogel and Rowold 2014). This efficiency increase, justify why Base Capital selects the commitment of their leaders as the first step on their transformation pathway (internal document shown during preparation classes). To achieve the commitment, it is important that leaders feel align and engaged on the decisions and that they understand the reasons behind the change.
In this scenario and to achieve their goal, Mercury could choose between two options: layoff the existing managers that did not possess any skills related with sustainability, offering resistance to the change, later hiring new ones with the skills wanted; offer training to the existing managers about sustainability, so the existing workforce could be committed to the desired transformation.
The board ended up choosing the second option, agreeing with Richard Branson tweet, who considers that we should “train people well enough so they can leave, treat them well enough so they don’t want to” (@richardbranson, March 27, 2014). Offering training is generally seen as a cheaper option, when compared to hiring new people, also bringing better retention of those trained employees (Orechwa 2020). Mercury was also committed to create an environment where all personnel felt employment stability, which is positively correlated with the firm performance (Ji, Guthrie, and Messersmith 2014). The adopted decision leaded to a total expenditure of $25 million in sustainability training, during the first year of the new board.
Human Resources Analysis
The stated desire of being known as having a great employment stability was shown during the six years. During the board tenure, only one manager was fired, after some quarters without a project to work on and no foreseeable project. Even looking to the factory employees, in six years, there were only six quarters where the firm made layoffs, one of them was a workforce relocation from the United States to Europe.
The employment stability was only possible due to the strategy of keeping the same cars in production, whenever possible. The constant communication between the operations and the human resources department, allowed for an accurate workforce forecast, creating a better perception of the supply and demand needed to prepare the workforce (Squires et al. 2017).
Meeting the company values
Mercury was always focused on being sustainable and meeting the proposed ESG goals.
The workforce diversity is a thematic that is getting more attention on the recent past (Sparkman 2019). This attention created the necessity, for the governments, to create quotas to solve the underrepresentation of women on boards, setting the minimum threshold between 30% and 40%, that every company needs to meet (Ekin 2018).
Nonetheless, having a diverse workforce does not mean an instantaneous increase in efficiency and an improvement in the financial performance. The board was aware that to benefit from diversity, it was important to reshape the power structure and be able to change its methods, based on the opinion of the population that was underrepresented before, as told by Ely and Thomas (2020). For this reason, every recommendation that came from the managers were taken into consideration, not looking if it was from a specific gender, age or ethnicity.
The Mercury’s commitment to achieve the workforce diversity is evident on the company diversity rates (Exhibit 7), where the rate increased 11.3 p.p., just in the first quarter of the new board. The gender parity was achieved in the beginning of the second year, after the new board
Human Resources Analysis
took over it, and was maintained until the end of the simulation. The fact that Mercury passed the mandatory quotas, achieving 50% in gender equality, not stopping at the mandatory 40%, and the speed at which it was changing the rates, shows that the company was always focused on deliver on its promises and acting upon its values.
Talent retention
Other area of focus from Mercury, was the retention of its employees, due to the belief of being its most important asset. According to De Smet et al. (2021) 40% of the current workforce is somewhat likely to leave their jobs. The desire of employees to leave could be explained from a lack of sense of community at the workplace, not being perceived as valuable to the company or to their leaders.
Unfortunately, Mercury had little options to meet their employees’ necessities and making them feel valuable. To have higher job satisfaction, the company decided to have as policy an annual increase of 8-16% in the managers salaries, once the salary satisfaction is positively correlated with job satisfaction (Ton 2017), always maintaining an internal equity, where employees were all close to the salary median (Card et al. 2012). During the quarter 16, the union leader of the factory workforce, asked for a 3% increase in salaries, that could have been rejected, to invest in environmental projects, but the board decided to invest more money and accept both options.
Although, offering training is also correlated positively with job satisfaction (Schmidt 2007), the simulation did not take it into consideration, but Mercury kept offering training to employees when needed. It was also a policy, to increase the managers salaries, after they completed the offered training, since they became more qualified.
The board decisions allowed to achieve a job satisfaction close to 100%, since the eighth quarter in action, never receiving any request to resign from any employee, during their tenure.
Real Examples
Nowadays, with the increasing demand for electric vehicles, the traditional manufacturers are all entering in the electrification wagon and setting goals to fully electrifying their portfolios, abandoning the combustion engines. Looking into the stated roadmaps, it is possible to understand that most of them plan to be fully electric in a period longer than six years, from the first electric only vehicle launch (Charlton and Pritchard 2022).
Meanwhile, there was a major appearance of new players in the car manufacturing sector.
Rimac, Tesla, Nio and Lucid are all brand-new manufacturers that want to operate on the electric vehicles space. These brands came with similar strategies, they start by offering expensive cars, to generate free cash flows, that hopefully will support the necessary research and development and the development of more facilities. Elon Musk (2006) CEO of Tesla, summarize their strategy in a short sentence “build sports car, use that money to build an affordable car, use that money to build an even more affordable car, while doing above, also provide zero emission electric power generation options”.
Reading the Mercedes strategy plan (2021), it is easy to understand why the traditional players could not follow the same strategy as the new players. Those companies already have products that generate the necessary cash flows, so they do not need to start the electrification with the most expensive cars. Mercedes started with the EQC (a $60k SUV, compared to the $250k original Tesla Roadster or the $2.1m Rimac Nevera) instead of the EQS, considered as their flagship. Mercedes is focused in transforming their current facilities to be carbon neutral and is searching for better suppliers, focusing on sustainability and their key values. Regarding the workforce, Mercedes is making efforts towards reskilling their current workers, instead of a complete replacement, although they are also using early retirement schemes.
Conclusions
The automotive industry was somewhat stable during the recent past, and suddenly the companies were faced with a fast-changing environment. Just like car manufacturers needed to adapt and change their behaviors, me and my group needed to adapt to the reality of stopping being students and become directors of a company. It was crucial to break the status quo, finding a new way of doing things.
Choosing the strategy function in first place was not by luck. I needed to know what Mercury wanted to achieve and how, while understanding the field in which it was playing. The company wanted to have electric cars but, looking inside, they could not just drop everything that it was built before (neither the facilities and machinery used to build cars nor the human resources employed) and just go after this new objective like a new player. Looking to the current goals of the real traditional players, to achieve fully electrification (six years plus), Mercury was more ambitious than them, achieving it two years after the first electric only vehicle.
This ambition was justified by the PESTLE analysis, where it was possible to conclude that the company was, in fact, facing new challenges and it was vital to adapt quickly. Just like Mercedes, Mercury used the older combustion cars to pay for the research and development, to build new and better cars than the competitors. Therefore, the first electric car introduced were not as expensive as it could be. This decision was made because the company did not have the first mover advantage, since it was entering a new territory, it needed to differentiate by the price. Just like Mercedes could not build the most expensive electric car, as Tesla gained the reputation of being technologically more advanced.
The strategic blueprint was created, and all the departments knew what was requested from them. To manage not to have the highest car price, while not having bad returns, the company needed to achieve better efficiency, in their factories, than the competitors. Operations played
Conclusions
an important role, trying to meet the demands of customers, while maximizing the factory utilization. The fact that operations manager could effectively communicate with the marketing peer, allowed to forecast the customer demands, being always prepared to meet their needs.
This forecast was useful to prepare the assembly lines, minimizing changing the cars in production.
Unfortunately, during the last quarter that the board was in the company, the demand forecasts failed and the company run out of inventory, which lead to a decrease in revenue, despite the prices of the products being the highest ever. This could have been prevented if the company followed the mass production strategy closely, investing more on expanding their production lines during its tenure.
The decisions made on the operations were also well aligned with the ones currently taken by Mercedes, always investing on efficiency and sustainability improvements. This meant, not only investing in our own factories, but also investing in energy sources with higher standards and find out better suppliers, aligned with the company’s mission.
The operations stability and the communication between operations and human resources department at Mercury, allowed to create accurate workforce forecast. These forecasts were of extreme importance for the human resources manager, that could put together the necessary teams, with the right skillsets.
The only way for the Mercury board to increase employees’ satisfaction was to increase their salaries, as the offered training did not have any effect. This limitation contradicted the most recent studies, defending that trying to manage the staff’s satisfaction, mainly through increasing salaries, does not seem to be the best procedure to put in place.
The fact that Mercury promoted employment stability, revealing the importance of each employee to the company, was vital to achieve the 100% job satisfaction, although Mercedes
Conclusions
used early retirement schemes to reshape their workforce. Nevertheless, both companies followed a strategy to reskill their workforce and continue to offer training, to assure readiness for future challenges.
Sustainability, that was in the center of Mercury strategy, helped the company achieving the desired vision. The fact that operations created a sustainable supply chain, almost reducing the CO2 emissions to zero, and the human resources developed a workforce that were able to operate in this new reality, allowed the company to achieve higher efficiency, creating a competitive advantage.
Aside from the environment sustainability, the social sustainability, in the form of the highly diverse board of Mercury, was also a key factor on its success. The board was composed by people from three continents, different age groups and different academic backgrounds, but lacked a little on the gender diversity, not achieving the equality that they searched for the directors. Nevertheless, that diversity was always respected, and every idea were discussed, giving them the same importance. In the end, the best strength of the company was the amazing workplace environment created, where the communication between departments were efficient, since everyone was rowing on into the same direction.
Although only three departments where analyzed, I am fully convinced that no department was more important than others. The fact is that a company could be seen as a chain of cog wheels, where a missing element will stop the entire movement. If one company cannot rely on the innovation department to possess the required technology, the operations to encounter the necessary infrastructure, the human resources to have the knowledge and the staff to operate it, the marketing to understand the customer demands and the finance to have the necessary capital, the company is doomed to failure, even if it has the best strategy.
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Appendix
Exhibit 1 – Guiding principles for each department
Exhibit 2 – Peers assessment of my qualities (average of the 5 peers)
Principle 1 Principle 2 Principle 3 Principle 4 Principle 5
Human Resources Pay above market Sustainable training for managers Operations Days of inventory between 40 and 60 days Optimise factory utilization
Marketing Affordable cars Increase marketing spenditure Do not use printing campaigns
Finance Low WACC Optimize firm value Increase share price Increase ROI Green Bonds over Loans
Innovation Innovate as soon as possible Decrease the CO2 as much as we could
Departments
Appendix
Exhibit 3 – Characteristics of a Fiery Red predominant energy
Strengths Weaknesses
Determined Being overly direct
Focused Dismissing others’ opinions Proactive Being coercive and controlling
Courageous Making rash decisions
Purposeful Taking over
Source: adapted from Hudson, Wylie, and Jones (2009)
Exhibit 4 – The 12 traits of emotional intelligence (areas to improve highlighted in gold)
Self-Awareness Self-Management Social Awareness Relationship Management
Emotional self- awareness
Emotional self- control
Empathy
Influence
Coach and mentor Adaptability
Conflict management Achievement
orientation
Organizational awareness
Teamwork
Positive outlook Inspirational leadership
Source: adapted from Goleman and Boyatzis (2017)
Exhibit 5 – Product mix when the group took over the company
Name Lux 225H Air 135G Biz 135D 4X4 100D City 75G
Type Luxury Convertible Executive SUV Compact
Emissions 150 142 126 144 114
CO2 Allowance 95 95 95 95 95
Difference 55 47 31 49 19
Product mix (at quarter 5)
Appendix
Exhibit 6 – Fleet emissions (g/mile) per quarter
Exhibit 7 – Diversity rates per quarter
Appendix
Exhibit 8 – Blue and red ocean strategy characteristics
Source: adapted fromKim and Mauborgne (2015)
Exhibit 9 – Value Added to the company (Value Added = Net Operating Profit After Tax - Net Assets x WACC)
Blue Ocean Strategy Red Ocean Strategy Create uncontested market
space
Compete in existing market space
Make the competition
irrelevant Beat the competition Create and capture new
demand Exploit existing demand Break the value/cost trade-off Make the value/cost trade-off
Align the whole system of a company's activities in pursuit of differentiation and low cost
Align the whole company's activities with its strategic choice of differentiation or low
cost
Appendix
Exhibit 10 – The 4 V’s framework of Mercury
Source: adapted fromacademic sessions slides
Exhibit 11 – Factory utilization
Volume
Variety
Variation
Visibility
LowHighHighHigh HighLowLowLow
Appendix
Exhibit 12 – CO2 Emissions from the operations
