@ElonMusk is definitely a well-recognised celebrity, and an ingenious although sometimes controversial manager. His recent decision to fire all the contractors caused a lot of questions and doubt in some environments , and a lot of applause from circles disappointed with consultants and consulting companies .
The reality of what has happened is, however, much more interesting than what the press describes. Let’s quote the e-mail :
I have been disappointed to discover how many contractor companies are interwoven throughout Tesla. Often, it is like a Russian nesting doll of contractor, subcontractor, sub-subcontractor, etc. before you finally find someone doing actual work. This means a lot of middle-managers adding cost but not doing anything obviously useful. Also, many contracts are essentially open time & materials, not fixed price and duration, which creates an incentive to turn molehills into mountains, as they never want to end the money train.
There are two points here, and I do not know which is more important:
’middle-managers adding cost but not doing anything obviously useful’.
I would say @ElonMusk is extremely mild here. Each management line, especially at the border of two different companies, is in a constant conflict of interest, which covers:
- @Tesla vs vendor interests. Both companies want to take the biggest possible share of a profit.
- @Tesla vs personal interests. Individual managers are vitally interested in justifying their presence. Which may cause them to focus on appearing useful instead of actually being useful.
open time & materials, not fixed price and duration
This part is even more important (there is a catch which I’ll describe later), as it is very difficult to measure vendor’s efficiency in that space. That said, all of the issues caused by additional lines of management are multiplied.
It does not take a lot to draw an obvious conclusion - fixed price and duration contracts are way safer to the company given that the contract can be written that way. This is the catch. Sometimes it is not possible because nobody know what should be expected (f.e. in the case of doing real research). Experiments have to be conducted and they have to be based on time and materials.
Now, one thing that makes me wonder is how Tesla will survive such a drastic change. Setting up a proper company structure (as covered by my online course, includes outsourcing) usually takes time. Investors do not seem to be overly optimistic about it:
but my opinion is:
- through the employee recommendation, @Tesla will directly hire people who really contribute to it. It’s a very simple way of filtering out who is and who is not valuable for the company. Note that the @Tesla size will increase, which may worsen financial projections.
- through cutting management lines, @Tesla will regain control over research projects if they are some. It is never wise to let others learn at your expense.
- Depending on a number of those contracts, such a cut may be very dangerous. @ElonMusk has to have either a lot of faith in his people to execute such a change overnight, or have a thorough understanding of what those contracts (don’t) provide.
Overall, it is a right direction which should have a lot of positive impact on @Tesla ability to execution after the dust settles.