Back Bay Battery PDF

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An analysis of the Back Bay Battery Simulation...

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MGMT 731 Technology Strategy

November 3, 2019

BACK BAY BATTERY WRITE UP Please be explicit about the assumptions that formed the basis for the initial strategy. How did the strategy change over time (i.e., between the first and the eighth year), and what were the reasons for those changes? Years 1 and 2 The simulation start with two years’ history. Back Bay Battery (BBB) suffer operating loss for both years due to big losses in super-capacitor (SC) business. It appears that BBB priced the SC way below cost. BBB is enjoy healthy margins of around 30% in AGM battery, with most of the sales coming from the automobile sector. Year 3 News indicated that the Automobile sector will grow, which is the sector generating biggest revenue for BBB. Meanwhile, the SC batteries are very far behind market’s expectations. Not understanding how the needs of super-capacitor (SC) will grow, I made the decision to invest 70% in AGM and 30% in SC. Based on performance reports, BBB’s AGM battery could improve on energy density, self-discharge rate and unit cost. Thus, investments are made in these categories. For SC, energy density and self-discharge are the areas that need significantly improvement before customers will adopt the product. Taking a gamble, I invest money to improve self-discharge in SC instead of energy density because the estimate project investments appears to be more efficient in self discharge technology. AGM Investments - $6M Total (Unit Cost $6.33; Sale Price $10) Energy Density Recharge Cycle Self-Discharge Recharge Time Process Imp. $3M -$1M $1M $1M Super-Capacitors Investments - $3M Total (Unit Cost $23.9; Sale Price $22) Energy Density Recharge Cycle Self-Discharge Recharge Time Process Imp. --$3M --Year 4 Realizing that investment in AGM recharge time does not affect automobile customer’s preference and investments in process improvement is not efficient in reducing unit cost, I shifted the investment on AGM to Energy Density and Self-Discharge only. The investment is still at a 70/30 split between AGM and SC, believing that continuous investment in SC can bear fruit by Year 6 or 7. Although our price of AGM is higher for automobile, and significantly higher for warehouse and shipping industry, BBB is not losing sales as automobile industry is growing. While warehouse industry is also growing, their preferred unit price is too low for BBB to make a healthy profit. As such, I dropped AGM sale price at $9 to stay competitive and to target the automobile industry. This allows BBB to still extract a healthy margin on AGM.

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MGMT 731 Technology Strategy

November 3, 2019

AGM Investments - $6M Total (Unit Cost $6.26; Sale Price $9) Energy Density Recharge Cycle Self Discharge Recharge Time Process Imp. $3M -$3M --Super-Capacitors Investments - $3M Total (Unit Cost $23.72; Sale Price $22) Energy Density Recharge Cycle Self Discharge Recharge Time Process Imp. --$3M --Years 5 and 6 Automobile industry’s growth is slowing down, while marine/shipping is growing rapidly. Meanwhile, the warehouse industry is unpredictable, with growth and decline varying between years. Our R&D on self-discharge reached a breakthrough, making our AGM battery superior in all industry for self-discharge category. As such, I scaled back on investment in self-discharge and shifted it to improve energy density. Moreover, there are news about gaining popularity on super capacitors. I changed investment split to allocate 55% to AGM and 45% to SC. The intent is to catch the steep part of the S-curve on Super-capacitors. Our unit cost for SC is still very high and we are losing money on each unit sold. I increase the sale price of SC, but found out that such increase significantly reduce the number of units sold. Moreover, we dropped our AGM price to stay competitive in all 3 industries. Due to decline in auto industry, our total revenue dropped and thus, our R&D budget shrunk to $8M. AGM Investments - $5M Total (Unit Cost $6.12 to $6.18; Sale Price $8.5) Energy Density Recharge Cycle Self-Discharge Recharge Time Process Imp. $2M to $3M -$3M to $1M --Super-Capacitors Investments - $3M Total (Unit Cost $23.44 to 23.75; Sale Price $20 to $24) Energy Density Recharge Cycle Self-Discharge Recharge Time Process Imp. $0M to $2M -$3M to $1M -$1M Years 7 to 10 Automobile industry continue to shrink. Also, the news on super-capacitors appears to be a hype and demand for them are not as robust as I hoped. While investments in SC does bear fruit by Year 7, the sale price of SC is still too high for all industry, even when BBB is selling them below cost. The price pressure on AGM resulting in declining revenue in AGM. As such, the gains in AGM is not adequate to cover the losses in SC and we start losing money in Year 7. R&D budget shrink to $5M and I decided to invest only 10% in AGM and 90% in SC. By Year 10, the unit cost of SC is very close to the sale price of SC. We are getting close to breaking even on SC when AGM’s margins are eroded away. AGM Investments - $1M Total (Unit Cost $6.07 to $5.96; Sale Price $8.5 to $6.75) Energy Density Recharge Cycle Self-Discharge Recharge Time Process Imp. $1M ----Super-Capacitors Investments - $4M Total (Unit Cost $23.38 to 23.13; Sale Price $22 to $23.5) Energy Density Recharge Cycle Self-Discharge Recharge Time Process Imp. $4M ----2|Page

MGMT 731 Technology Strategy

November 3, 2019

What were the main challenges that you faced while making decisions?   

Unpredictable decline and growth in automobile, marine and warehouse industry The variable sale price expectation between the three industries make it hard to maintain a healthy margin while gaining market share No sure how much money is really needed to achieve the right amount of technological advancement without exceeding needed performance

What additional information you would have liked to have before making decisions? Please be explicit about how might that information be collected and how would it improve decisionmaking. 

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Understanding the technology advancement to-date based on invested dollars. This can be as simple as plotting a graph. The information will be used to understand which technology gives is bigger bang for the buck. A better market forecasting tool to better understand which market is growing at what rate. Perhaps this is hiring an outstanding marketing director or firm. The information will help decide what sale price we should set.

What did you take away from the simulation?  

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It is easy to fall into the trap of a hype curve and over-invest when speculations are high. This is what happened in Year 6 within the simulation. Market pressure on sale price cannot be ignored. That would reduce my profits and ability to R&D. Need to keep an eye out on core product and continue to provide maximum value. R&D in process improvement does not really help AGM, a mature product, but help reduce unit cost in SC, a newer product. Thus, it is not worthwhile to invest in process improvement on mature products. R&D requires continue investment in a specific technology category in order to bear fruit. It is important to target attributes/technology that customers cares the most.

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