Blog #3: Back Bay Battery Simulation Analysis

While performing the Back Bay Battery simulation, I relied on the information that was available to me when it came to determining price and R&D investments for the NiMH or the Ultracapacitor batteries. When it came to R&D investments, desired features and their level of importance played a critical role in how much I would allocate R&D for each feature. I also examined the unit sales for each battery type with each potential and existing customer.

Over the course of the simulation, NiMH unit sales for power tools were consistently the most sold battery and customer. Total unit sales were always highest for NiMH batteries overall, however, NiMH sales plateaued after 2013 as the potential customers began to dwindle in the market for power tools and two-way radios. Once this occurred, my operating profit saw a decrease to -$46.7 million in 2018 before it saw any improvement in the subsequent years.

The market that had the most potential customers that I was unable to capitalize on was for power packs. I made strategic R&D investments into the Self Discharge feature, which was a feature of high importance for power pack customers. The Ultracapacitor battery had an advantage over the NiMH battery when it came to the Self Discharge feature, so I opted to invest R&D in that area for the Ultracapacitor. Once I had achieved the desired level for the Self Discharge feature with the Ultracapacitor, I reduced the amount of R&D investment in that area. Unfortunately, the issue that I was unable to resolve was the unit cost required to make the Ultracapacitor, which was consistently over $20 to produce. I was unable to meet power pack customer’s desired price below $10. I tried to sell the Ultracapacitor below it’s unit cost, however, there was still a considerable gap between power pack customer’s desired price and the retail price. This certainly contributed to the operating profit losses.       

Overall, I concluded the Back Bay Battery simulation with an operating profit of -$18.69M and a cumulative profit of $16.50M. The simulation showed me what happens when you base your decisions on current market trends. It’s essential for companies to follow what Clayton Christensen calls discovery driven planning, which requires managers to identify the assumptions upon which their business plans or aspirations are based (Christensen, 1997). This process would allow managers to test market assumptions before resources are fully committed and too expensive to reverse course (Christensen, 1997).

During the simulation, I had assumed that the market for power tools would continue to bear profits for the company with the NiMH battery. However, when competition was introduced and the market became saturated, prices for the NiMH battery had to be decreased. I was forced to be reactive in my decision making and it was too little too late before operating profits suffered.    

References

Christensen, Clayton M. The Innovator's Dilemma. Harvard Business Review Press, 1997.