This week’s Back Bay Battery simulation was incredibly interesting and fun. The objective of the simulation was to maximize profits by 2020. The struggle with this simulation was striking a balance between innovating disruptive technology and maintaining high yearly profits. After reading the case, I realized price was the single most important factor to our customers. At the time of 2012, our NiMH technology seemed to be competitive with regards to Energy Density, Recharge Cycle, and Price. On the other hand, Ultra capacitors were outperforming what customers desired in Recharge Cycles, Self Discharge, and Recharge Time. What the new technology lacked was Energy Density and Price.
I evaluated the provided data in the simulation and ultimately reasoned that since our NiMH technology was already on par with the market needs including price, it was more appropriate to invest in future technology that will give Back Bay Battery a competitive advantage when price and capacity for Ultra capacitors meeting the market levels. With this vision in mind, my strategy became fairly simple: use the current profits from NiMH sales, and invest all of our R&D budget to reduce the price and increase energy density of Ultra Capacitors.
Unfortunately, I overlooked several issues surrounding the simulation. I did not anticipate that the desired features could shift so dramatically year by year. For example, in 2016, power tool customers discovered that with very fast recharges, there was less desire for energy density. By this time, I have already over invested in Ultra Capacitor energy density and was still lacking significantly with regards to price. Perhaps the biggest overlook was the fact that desired price continued to drop year after year which significantly reduced my margins from the NiMH. Furthermore, the lowered desired price made it more difficult for my new technology to compete price wise. My goal was to reduce price of Ultra Capacitors to $6-7 by 2020 so that it would be competitive against other substitutes. By 2017, the desired price dropped to 6.8 making it still unfeasible to compete against NiMH. By then my margins for NiMH was only 20%. I managed to incur losses for the company between 2016 and 2017 but fortunately 2018 and on was very profitable given the marketability of Ultra Capacitors. By the end of 2020, I was able to
This week’s exercise is very informative as it demonstrates the difficulties leaders deal with running an organization. Resources are always scarce and we must be able to allocate those resources appropriately to meet market trends.