Assignment Task: 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 super capacitor (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 super capacitor batteries make up the remaining 20% of revenue.
Back Bay Battery sells its batteries to businesses. There are three primary markets:
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. Marine applications. AGM cells are a preferred battery type in marine applications such as submarines and ship engine rooms because they don't generate dangerous gases on charging.
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 super capacitors, 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 super capacitors 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.