Back Bay Battery Simulation
Q1: Simulation Performance
I am at the position of the CEO in Back Bay battery, which domain with the AMG technology and Super Capacitors (SC) is disruptive technology. Back Bay battery has their main market, which are Automobiles, warehouse equipment and Uninterruptible power system (UPS). The two type vary in their performance across five distant features; energy density, number of recharge cycles, self-discharge to 50%, recharge time and price. Market vary in terms of how these features are ranked relative to each other, which is the really important to create blue sea and disruptive innovation. Disruptive technologies offer additional feature that main product is not the key strategy to attract niche customer (Mi, 2015).
For Back Bay Battery Simulation, I completed the game as a CEO of Back Bay Battery. I reach the end of Simulation by cumulative profit $441.9M. In past ten years as the CEO of Back Bay Battery, I try to use the concept of blue ocean strategy and how it can lead to sustainable competitive advantage. According to Kim (2005), competition, the supply side of equation, remains the defining variable of strategy with the focus on diving up existing industry space. One of the most efficient ways to create Blue Sea is create new dimensions, and understand how do customers value each of dimensions. I try to get a new market through differentiation, how to create demand, break through competition and gain more profit with innovation ability. I realize there is a Blue Ocean in SC market. In order to target the blue ocean market, the features of current customer desired performance is important for me to analysis the market. Hence, analyzing what is the gap between customer desired and current market performance is important. Firstly, It has been spend $12m to increase self-discharge for SC, and it is failed. However, I clearly understand the cost of SC Product need to be reduced significantly. Since year6, I invest $7m every year in order to reduce the cost of SC, and it is succeeds. Moreover, There is a performance gap between sustaining innovation and performance that customer realize. When the technology improvement is stand early on learning curve, I did not give it up, and invest it continually. At the end, the investment has been pay back.
Q2: What worked and what did not work in pursuing objective?
There is a Bule Sea Market for UPS Market, the UPS need 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. Super capacitors have several major advantages compared to batteries. First and foremost, they can withstand far more recharge cycles than typical batteries. While an AGM lead-acid might withstand 1500–2000 discharge/recharge cycles, a supercapacitor would see little to no degradation over time. The other advantage is they have the ability to deliver huge surges of power as well as recharge quickly. This is reflected in a fast recharge time—they can charge and discharge quickly. however, the disadvantage is self-discharge of SC rate. Supercapacitors lose 40–50% of their energy over the course of a month if they just sat unused.
From year 1 to years 2, the UPS grew by 28% to 3.2 million units annually; the market size, install base, and potential customers are all present an increasing trend (appendix). UPS is the only one that expects to growth in sales and potential market. However, we can see, SC always lose money in 2 years (appendix). It can be defined as a Blue Ocean Market in though the data. Self-discharge is very important to UPS, SC.
In order to satisfy target customer, in first 2 years, I spend 6 millions ever year to decrease self discharge rate for SC, and it is a mistake that I have take, I should of invest on AMG self discharge rate instead of on SC. Although it is important for SC to increase self-discharge, the discharge is at 12 which is higher than 11 for UPS. I made a mistake that I think the lower self discharge means better. I was thinking that investing on decrease the self-discharge rate of SC for UPS is important and profitable. In fact, after 2 years practice, I realize that the self-discharge rate of SC does not need to be improved. This is a failure that I made in the stimulation.
At the end of year4, the company has been paid $7 millions to reduce the unit price of SC. The customer is looking for higher power density and lower unit battery costs as they are feeling market pressure from Asian competitors. Price is really important to warehouse equipment and UPS. Lower price of product is a blue ocean market to companies. According to disruption innovations, there is a performance overshoot between sustaining innovations and disruptive innovation, and disruptive entrants always win, therefore, the performance would not be equal with the costs at the beginning (Markides, 2006). To satisfy the UPS market, the price of SC need to be lower, from $22, all the way down to $10. However, the investment budget is limited, at the end of year4, the company can just pay 7 millions to reduce the unit price of SC. 10–74% reduction in unit cost in 5-7 years, the manufacturing costs are still very high because Super Capacitors are early on the learning curve. It is important for Back Bay to remain price competitive in order to increase the unite sales. At the end of year 10, the performance of variable cost per unit has been reduced from $23.12 to $11.03, which has been reduced the cost of SC significantly from $22 to $11.03. The unit sales of SC have already been improved. More profit has been made by SC Products. Reducing price is a useful investment that I made in simulation, and I did not give up at the beginning of the learning curve.
Q3: What can do better next time
Although I reach the end of stimulated, there is a huge problem that I have been made. In first two years, I was thinking the lower self-discharge is better; I was trying to invest money in order to make self-discharge rate from 12 to 11. 2 years later, I realize that investing money would not make self-discharge rate lower. On the contrary, it make self-discharge rate become higher. I waste 2 years budget to do a useless thing. Next time, I will figure out what is the real consequence for my spending first, is it positive to my business? Or negative for the business. The investment can make the data lower or higher? It is little confused sometimes, but I will look it clearly before making investment decisions. Next time I will invest money on improving the power density and energy density of AGM for Warehouse equipment. Improvements in energy density rely on changing the formulation or internal plate and mat design. The energy density is high importance to warehouse equipment. $3.0-$9.0 annual investments with 4-6 years can improve 900–5,200 watt hours/kg totally. The unit sale of AMG will increase significantly, Back Bay battery can break through competition and gain more annual revenue and profit.
Moreover, I will also improve the Self-discharge rate of AMG for UPS and Warehouse equipment. Decreasing self-discharge will make AGM batteries more appealing for devices that do not have regular access to power. A project will costs 5-8 years with $10m-$32m total costs, it would probably look at separator layers and consider material substitutions to decrease internal leaking. After improve the self-discharge of AMG, the price and total profit of AMG can be higher.
References
Kim., W. 2005. Blue Ocean Strategy: From theory to practice. California
Management Review, 47(3), pp.105-127. Retrieved from
https://journals.sagepub.com/doi/10.1177/000812560504700301
Mi., J. 2015. Blue Ocean Strategy. The Journal of Strategic Management, 12,Retrieved from https://onlinelibrary.wiley.com/doi/abs/10.1002/9781118785317.weom120024
Markids., C. 2006. Disruptive Innovation: In need of better theory. The Journal of
Product Innovation Management, 23(1), 19-25. Retrieved from
https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1540-5885.2005.00177.
Appendix
Appendix 1: year2 potential customers for UPS
Appendix 2:Self discharge feature to 3 markets
Appendix 3: decisions for the end of year 2
Appendix 4: Price feature to 3 markets
Appendix 4 Year4 R&D Investment
Appendix 5: the cost of SC has been reduced slightly in year7
Appendix 6: the cost of SC has been reduced significantly to $11 at the end of year 10
