Reference no: EM132945030

Welcome to Strategic Innovation Simulation: Back Bay Battery

You are the president of Back Bay Battery, Inc., a $240 million revenue division of a $40 billion consumer electronics manufacturer. Back Bay Battery produces two types of batteries, the absorbed glass mat (AGM) battery and a new supercapacitor (SC) battery. The AGM is a heavy, lead-acid battery that is easy to handle, withstanding vibration and extreme conditions well. AGM batteries represent 80% of the company's revenue and have been a mainstay of the business. The newer supercapacitor batteries make up the remaining 20% of revenue.

Back Bay Battery sells its batteries to businesses. There are three primary markets:

Automobiles. Several characteristics of AGM batteries make them attractive for high end vehicles. They can be placed somewhere in the interior of the vehicle or the trunk since they are sealed. The rising popularity of start-stop engine technology (which improves fuel economy) means an increased demand from automakers because AGM technology is well suited to the increased power demands and frequent cycling. They are also beginning to be used for braking energy recovery (regenerative braking). A generator attached to the drivetrain of a popular European SUV captures the energy released during braking and uses it to power the many electrical subsystems on the vehicle. Both of these applications improved fuel efficiency.

Warehouse equipment. Automated logistics warehouses use many pieces of equipment that use electrical power, such as stackers and robots, and Back Bay has carved out a growing niche, supplying batteries for these systems. Many of these systems draw high startup power and they need to undergo frequent charging cycles.

Uninterruptible power systems (UPS). This segment includes backup power systems for large datacenters. Warehouse-sized rooms are filled with batteries that are switched in to provide power in the event of an outage. The batteries only need to supply electricity for about 15 seconds, which is the amount of time it would take to spin up standby diesel generators.

The two battery types vary in their performance across five distinct features: energy density, number of recharge cycles, self-discharge to 50%, recharge time, and price. Markets vary in terms of how these features are ranked relative to each other.

Market pressures on pricing mean that Back Bay Battery never has quite enough R&D money to spend on everything its research staff would like to do. On the one hand, the team gets daily pressure from the sales organization to improve the company's AGM battery offerings because, in this commodity business, small performance or technical advantages can swing a large order as pricing is pretty competitive. The company can tweak its demand by adjusting prices, but needs to be careful not to lose a big customer in the process. Back Bay also has to factor in how long it will take for those investments to bear fruit. While some of the scientists wax poetic about the potential of supercapacitors, the technology has major shortcomings for Back Bay's core markets today, and the company has to be careful not to dig too deep a hole financially.

The product manager at a major auto maker (who happens to be one of Back Bay's largest customers) has been encouraging the company to focus on its specific needs for an upcoming refresh of its SUV line. The customer is looking for higher power density and lower unit battery costs, as they are feeling market pressure from Asian competitors. He has been shopping for competitive AGM batteries sourced offshore, and has made clear to Back Bay the importance of remaining price competitive. The rapid recharge time for supercapacitors would be appealing if the storage capacity were much larger. Focusing on this customer would consume essentially all of the company's limited R&D resources.

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