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Strategic Innovation in Supercapacitors

The document discusses the strategic decisions made in the Strategic Innovation Simulation for Back Bay Battery, focusing on the financial challenges faced by the Supercapacitor product. It highlights the need for significant R&D investment to reduce production costs and the decision to abandon the AGM market in favor of Supercapacitor sales due to higher potential profits. The conclusion emphasizes the early investment in process improvement leading to substantial cumulative profits.

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44 views6 pages

Strategic Innovation in Supercapacitors

The document discusses the strategic decisions made in the Strategic Innovation Simulation for Back Bay Battery, focusing on the financial challenges faced by the Supercapacitor product. It highlights the need for significant R&D investment to reduce production costs and the decision to abandon the AGM market in favor of Supercapacitor sales due to higher potential profits. The conclusion emphasizes the early investment in process improvement leading to substantial cumulative profits.

Uploaded by

paul mulwa
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

1

Simulation Live Run (1 of 4)

Student’s Name

Institution Affiliation

Instructor

Date
2

Strategic Innovation Simulation: Back Bay Battery

Successful strategy

Find the reason why the company is not making money in the early stage

From (Figure 1), we are able to clearly understand why Supercapacitor in the early

stage of production has its cost of each product at $25 while its price is only $20 which

means every time when Supercapacitor is sold, $5 loss instead of the thought that the more

we sell, the more money we need to lose. This is also the reason I mentioned that it is

impossible for this company to generate positive revenues in the initial stage.

R&D investment for Supercapacitor's Variable Cost Per Unit

For the R&D in Variable Cost Per Unit $7.0M, in response to the excessively high

production cost of Supercapacitor, I aim at cutting down on the production cost of

Supercapacitor in the shortest time possible. The rationale for using $7.0M as my investment

amount is due to the annual investment as depicted in (Figure 2) according to Which

Supercapacitor’s investment in the Process Improvement project ranges between $3.0 and

$7.0. As I have previously pointed out, I need to decrease the production cost of

Supercapacitor as early as possible, and $7.0 is the optimal option I believe. This is also due

to the investment in the Process Improvement as indicated in (Figure 3), the manufacturing of

the Supercapacitor has removed the initial cost by reducing the cost per unit from twenty-five

dollars to ten dollars which will provide benefits in our sale section in the later periods.

Give up the AGM market and concentrate on Supercapacitor sales

The rationale for ending the supply in the AGM market is that the gross profit from

the production of AGM is too low. AGM’s cost is $20 per unit while its revenue is $24 per

unit, which gave it a small Gross Profit of only $4 While Supercapacitor cost ranges between

$15 and $20 per unit and it could potential earn as much as almost $10 Gross Profit per unit

once the cost of R&D under Process Improvement has been incurred. The other reason is that
3

as illustrated in the (Figure 4), AGM has a major customer in Automobiles, but as illustrated

in the (Figure 5), the projected market size of automobiles consumers is gradually decreasing.

Then see (Figure 6) verifies that Supercapacitor targets UPS as its principal buyer, while

(Figure 7) depicts that the customer base for UPS is on the ascendancy. This is why I decided

to transfer the sales target from the traditional company to Supercapacitor. From figure 8,

there is marked increase of Supercapacitor revenue which contributed almost 80% of the total

revenue in the later period.

Conclusion

This means because I began investing in Supercapacitor’s Process Improvement R&D

at such an early stage, I can get such a large profit at that stage (Figure 9). Another advantage

is that the final cumulative profit can amount to $ 1,317.7M – it translates into a very

effective for me course of action.


Figure 1

Figure 2

Figure 3
Figure 4

Figure 5

Figure 6
Figure 7

Figure 8

Figure 9

Common questions

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The cost reduction for Supercapacitors went through a significant phase characterized by strategic R&D investment. Initially, the production cost was $25 per unit, which meant a direct loss per sale when paired with a $20 selling price. By investing $7.0M in process improvements, the cost was successfully reduced to $10 per unit. This had a profound consequence on revenue generation, as it not only eliminated the loss per unit but also increased the potential gross profit to nearly $10. Consequently, this strategic move allowed Supercapacitors to contribute up to 80% of the company's total revenue in later periods, securing financial robustness .

Transitioning from AGM to Supercapacitor production had a substantial strategic impact on the company's overall financial health. The limited profitability of AGM, with only a $4 gross profit per unit and declining customer interest from the automotive sector, prompted this shift. By contrast, Supercapacitors, with potential profit margins of nearly $10 per unit post-cost reduction, presented a more financially attractive option. This shift leveraged growing demand from sectors like UPS, allowing Supercapacitors to eventually represent almost 80% of total revenues and achieving a cumulative profit of $1,317.7M, thereby rejuvenating the company’s financial state .

Early R&D investments proved highly effective in strengthening the company's competitive positioning in the supercapacitor market. By allocating $7.0M to reduce unit costs from $25 to $10, the company gained a significant competitive advantage through improved profit margins and the ability to offer competitive pricing. This early investment facilitated the capture of a large market share, as evidenced by Supercapacitors contributing 80% of total revenue. The strategic foresight in R&D investment positioned the company to meet growing market demands effectively, enhancing its competitive edge .

Early investments in R&D for Supercapacitors were crucial for the company’s long-term profitability. By investing $7.0M in process improvement, the company significantly reduced the production cost of Supercapacitors from $25 down to $10 per unit. This reduction in cost enhanced the potential gross profit margin per unit to almost $10. As a result, Supercapacitors contributed nearly 80% of the company’s total revenue in subsequent periods, showing a decisive impact on cumulative profitability, which eventually amounted to $1,317.7M .

The initial production cost of Supercapacitors was $25 per unit, causing a loss of $5 for each unit sold at $20, which made it impossible for the company to generate positive revenues initially. To address these challenges, the company focused on R&D investments specifically aimed at cost reduction. By allocating $7.0M for process improvements, they managed to bring down the cost per unit to $10, making the Supercapacitors profitable. This strategic investment allowed the company to enhance its profit margins and shift away from loss-making scenarios .

The decision to exit the AGM market was evaluated primarily in terms of profitability and market trends. The gross profit margin for AGMs was minimal, with only $4 profit per unit after a production cost of $20 and a revenue of $24. Moreover, the anticipated contraction of the automobile market, the major customer base for AGM, presented an unfavorable trend. In contrast, Supercapacitors promised a higher gross profit potential of nearly $10 per unit post-R&D process improvements and faced growing demand from the UPS sector. These factors collectively justified withdrawing from the AGM market in favor of more lucrative and promising opportunities in the Supercapacitor segment .

The rationale for choosing a $7.0M investment in process improvement R&D for Supercapacitors was based on the need to significant lower production costs swiftly. This amount fell within the investment range of $3.0M to $7.0M deemed necessary for substantial cost reduction. The deliberate choice of the maximum available investment ensured achieving the fastest possible reduction in production costs, which eventually cut costs per unit from $25 to $10, laying the groundwork for increased profitability in future sales .

The company decided to shift its focus from AGM to Supercapacitor sales due to several financial reasons. Firstly, the gross profit from AGM production was low, with a cost of $20 per unit and revenue of $24, resulting in a $4 gross profit per unit. In contrast, Supercapacitors, once the cost of process improvement R&D was incurred, could potentially deliver a gross profit of almost $10 per unit as their costs ranged between $15 and $20. Additionally, the projected market size for AGM's main customer base, automobiles, was decreasing, whereas the customer base for Supercapacitors' target market, UPS, was growing. This strategic shift allowed for a substantial increase in Supercapacitor revenue, accounting for almost 80% of the company's total revenue in later periods .

Strategic decisions were greatly influenced by changes in the customer base for both AGM and Supercapacitors. The AGM market was shrinking as the main customer base, automobiles, was experiencing a decrease. Conversely, the customer base for Supercapacitors, particularly among UPS buyers, was on the rise. This shift in customer dynamics drove the company to abandon the AGM market and concentrate efforts on Supercapacitors, which was more promising due to the growing demand from UPS consumers .

The company's strategic innovations in supercapacitor technology substantially influenced market dynamics by lowering production costs and enhancing profitability. By investing in process improvement R&D, costs were cut significantly, allowing the company to offer more competitively priced products with higher profit margins. This innovation also catered to the expanding UPS customer base, realigning market focus away from traditional AGM buyers and capitalizing on new growth opportunities. These strategic innovations increased market competitiveness and reshaped demand structures, facilitating the domination of the supercapacitor market segment .

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