Strategic Management of Ballard Power Systems - Case Study Example

Ballard Power Systems Analysis Introduction Managers of any business struggle with coming up with a strategy to enable the company meet its set goals and objectives. The primary goals of a company is to make profits and maximise returns. To achieve this the management needs to keep re-innovating its strategies to ensure that it continues to perform in accordance with the stakeholders expectations (Edwards, Ketchen, & Short, 2014, pg. 8, 1). Strategies have to change from time to time as different moments call for different strategies. In this paper we will analyse Ballard Power Systems and advice the management on a strategy that it can apply to further the company`s agenda through strategic management (Edwards, Ketchen, & Short, 2014, pg. 6, 1). Company Background Ballard Power Systems Inc. is an American manufacturing company that specializes in the manufacture of Proton exchange membrane (PEM) fuel cell products. The company focuses on markets specializing on portable power, material handling and engineering services. The company was founded in the year 1979 under the name of Ballard Research Inc. It was specializing in the research and development of high lithium batteries. The company stock went public in 1993 on the Toronto and was subsequently listed on NASDAQ in 1995. Strategic positioning 1. Vision Statement Ballard power systems is a global company in the power industry whose vision is: “Be the leading global provider of innovative clean energy solutions”. This vision clearly cuts out the goals and objectives of the company becoming the go-to company for power solutions especially in the sectors it operates in (Edwards, Ketchen, & Short, 2014, pg. 40, 1).. This vision however, can be strengthened through the addition of potential positioning of the company view which would reflect its achievements so far before strategizing for the future (Edwards, Ketchen, & Short, 2014, pg. 40, 2). 2. Mission Statement The mission statement of Ballard Power Systems is “Use our extensive fuel cell and systems know-how to profitably deliver innovative clean energy solutions to our customers, create rewarding opportunities for our team, and provide extraordinary value to our shareholders.” This mission statement is narrow as it does not have all the components of a mission statement. The mission statement does not address issues such as employee competencies, technology, public image and self-concept. These issues are critical to its shareholders and other stakeholders (Edwards, Ketchen, & Short, 2014, pg. 41, 2). Internal Environment analysis Corporate structure Ballard Power Systems is led by Mr. Randall MacEwen who is the president and chief executive office. He has held this position since October 2014. Before that he had held executive roles in clean energy related companies for more than 15 years which also included fuel cells and solar. Mr Randall MacEwen is deputised by four vice presidents. Mr. Rob Campbell is the vice president and chief commercial officer. He was appointed to this position in May 2017. He is in charge of global business development, sales and marketing, after-sale-services activities and product line management. He is well versed with globals business development in technology related products in Japan, China, India, USA and European markets. Mr. Kevin Colbow is the vice president for technology and product development. He was appointed into this position in February 2016. He is in charge of leading the technology solution in business segment which comprises of engineering services and IP licensing. The third vice president is Mr. Tony Guglielmin who is also the Chief Finance Officer. He was appointed to this position in June 2010. Before that he worked as SVP finance and chief financial officer of Cana Line Rapid Transit Inc. The fourth Vice President is Mr. David Whyte who is in charge of Operations as well. He has been working with Ballard since 2006 as a leader in the supply chain of the group. He is responsible for functional responsibilities for the company`s multi-site manufacturing activities, Supply Chain, Manufacturing Engineering & Development, Facilities, and Environmental, Health & Safety. Corporate Strategy Ballard Power systems has adopted an expansionary strategy in the recent couple of years. In this paper we will also find out if this is the best strategy for the company. The company is looking to capitalize on the potentially increasing adoption of fuel cell in China and other market (Edwards, Ketchen, & Short, 2014, pg. 65, 2). The company is entering into these markets through the use of local companies. Fuel cell technology is facing an uphill task in China and other well established battery electric vehicles hence the push for the company towards acquiring more market share. The corporate strategy is in line with the vision and mission of the company (Edwards, Ketchen, & Short, 2014, pg. 22, 2). As per the vision of the company wants to become the market leader of clean energy in the world. The mission of the company is to creating a winning environment for its employees, investors and others. This strategy will enable Ballard Power systems to achieve the main issues in its vision and mission statement. Business Unit Level Strategy Any business that is in the profit making industry should always focus on satisfying its customers so as to achieve satiable returns. To achieve this businesses apply business level strategies. These strategies detail the actions taken towards the provision of value to clients thereby assisting the company to have competitive advantage in its individual product or service industry. A business-level strategy will be inclined towards improving the position a company holds in a certain industry relative to other players in the same industry. For many year now the fuel cell industry has been degraded and ridiculed with arguments about its self-sustainability. This opinion has been widely supported by the profitability of businesses in this industry. However, this has not been the case for Ballard Power Systems ltd. The company has laid down strategies aimed at ensuring it is profitable in an industry that is highly untapped. The company has a fairly positive revenue trajectory over the last years. The company is riding on the demand for energy saving power that is climate friendly to achieve its goals. Functional Level Strategy The strategic management strategy adopted by an organization highly determines its chances of success. There are different levels of strategic management which play different roles. The success of any corporate strategy is highly dependent on the results of the functional level strategy. This calls for managers to align all their strategies to weed out any possibility of a contradiction. Functional level strategy helps in checking the reality of business level and corporate level strategy in bringing the desired results by turning strategies and plans into realities. Ballard Power Systems Ltd aims at capitalizing on the increasing demand for renewable green energy. The company aims at achieving this through strategic partnerships with companies that will help it achieve this. Through these partnerships Ballard Power Systems Ltd will be able to produce quality products at competitive prices. The company already has the following partners as shareholders; Anglo American Platinum, Zhongshan Broad-Ocean Motor Co, Nisshinbo Group and United Technologies Corporation (UTC). All these companies form the functional level strategy as they help Ballard Power Systems Ltd achieve its business strategy. Financial Analysis This financial analysis report will involve the financial report of Ballard power systems as reported by the company in the year 2016. The report will focus primarily on the ratio analysis of the company. Different ratios of the company will be computed and the results analysed to make a verdict. Ratio Analysis Profitability ratios Formula Calculation 2016 Industry Verdict Gross profit margin (24/85) * 100 28.23 23.41 Positive Net profit margin (-21/85) * 100 -24.71 -2.52 Negative Return on assets ratio Net Income / Total Assets (21)/183 -11.48 5.27 Negative Generally the company is operating below the industry averages in terms of profitability. The Gross profit margin was positive while the net profit margin was negative an indication that the company needs to work on its expenses. The return on assets was -11.48 meaning that the company actually lost money. Liquidity Ratios Formula Calculation 2016 Industry Verdict Current Ratio Current assets / current liabilities 108/43 2.51 1.26 Neutral Quick ratio (Current assets - Inventory)/ current liabilities (108 - 17)/43 2.12 0.84 Neutral Debt to equity ratio Total liabilities / Equity 59/125 2.11 26.2 Negative The current and quick ratio show the ability of a business in meeting its short term obligations. The ideal ratio is 1 indicating that a firm is able to fully meet its short term obligations at the time of the analysis. In the case of Ballard Power Systems Ltd the current ratio is 2.51 and 2.12 is the quick ratio. While this shows the firm is highly able to meet short term obligations the ratios are also very high. This could mean that the firm is not utilising its assets well. This has led to the “neutral” verdict. The debt to equity ratio though sustainable is way below the industry average hence the negative verdict rating. Efficiency Ratios Formula Calculation 2016 Industry Verdict Inventory turnover Cost of goods sold / average inventory 61 / (37/2) 3.3 3.83 Positive Assets turnover Net sales / Average total assets 85 / (344/2) 0.49 0.75 Neutral Inventory turnover ratio shows the number of times that a company turnover their business. A business should not be way too low when compared to that of the industry. This has led a positive review for Ballard Power Systems Ltd as there is not much difference with the industry average. Asset turnover on the other hand tells how a firm is managing its assets to make sales. Ballard Power systems got a neutral verdict due to its low turnover and the big difference with the industry average. Growth Ratios Formula Calculation 2016 Industry Verdict Sales Growth (current sales - previous sales) / previous sales 85-56 / 56 53.57 -14.74 Positive Net Income (current Net Income - previous Net Income) / previous Net income (21) - (6) / (6) -71.4 -15.62 Negative An investor and other stakeholders would be interested to learn about the trend of certain items in the balance sheet and income statement. The revenue for the company had increased by 53.57% while the net income shrunk by a 71.4%. This is unacceptable and any reasonable stakeholder would be interested to find out why there is this negative trajectory despite the increase in sales. Internal Factors Evaluation (IFE) Key Internal Factors Weight Rate Weighted score Strengths       Brand recognition with affordable prices 0.06 4 0.24 Global footprint of Ballard 0.03 4 0.12 improvement in cash floew 0.03 4 0.12 Increase in its sales 0.04 4 0.16 Investment in CSR 0.05 4 0.2 Investment in research and development 0.09 4 0.36 ISO-9000 certification 0.03 3 0.09 marketing background in the CEO 0.03 3 0.09 Organization structure - Flat 0.04 4 0.16 Primary clients are wholesale clients 0.02 3 0.06 Profitable partnerships 0.03 3 0.09 Stable market in the USA and major markets 0.05 4 0.2 Top notch marketing 0.07 4 0.28 Increasing demand for green energy 0.06 3 0.18 Weaknesses     0 A relatively small budget in R&D 0.06 1 0.06 Insecure employees 0.04 2 0.08 Increasing expenses 0.09 2 0.18 Less product variety when compared with competitors 0.05 1 0.05 Low business volume when compared to total investment 0.04 1 0.04 Low presence in emerging markets 0.05 2 0.1 Profits loss in the global markets 0.04 1 0.04   1   2.9 The internal factor evaluation (IFE) matrix is very similar to the External factor evaluation (EFE) matrix. The main difference between the two is the factors that will be considered into the model. IFE considers internal factors that would affect the performance of the business while EFE considers the external factors. It is also important to note that while IFE deals with Strengths and Weaknesses, EFE deals with opportunities and threats, this creates a comprehensive SWOT analysis. Strategy analysis Strengths and Weaknesses analysis When considering the strengths of Ballard Power Systems, we realized that its brand was one of the cornerstones of its success. This means that the company is expected to sell more products simply because of its brand and not on price or quality (Edwards, Ketchen, & Short, 2014, pg. 132, 2). The company was also found to enjoy a substantial market share in the United States and other major markets like China and Europe. This means that it can now look to gain more territory outside the US without minding much of its core business market. The organization structure is as important as the people in it. It was, therefore, important to look at the organization structure of Ballard Power Systems and the management. It was found that the company has a flat structure which is superior to other structures. The management was also found to have a substantial amount of experience which is important in running a global company. When researching on the weaknesses of the company internally, it was discovered that the company had a limited budget for research and development when compared to its competitors. This means that this department is limited in its output. The company needs to ensure that more employees have a duly signed collective bargaining agreement. The level of debt is also alarming as it makes the company not very competitive. More effort should go into repaying this debt and increasing the company`s portfolio. Competitive Strategies We will use the BCG matrix which can be defined as a chart designed by Bruce D. Henderson meant to help businesses analyse their business units in reference to their product lines. The chart helps the management allocate resources. The chart has also been modified to work as an analytical tool for brand marketing, strategic management, portfolio analysis and product management. When conducting the industry analysis, it was clear that having a competitive advantage is crucial in the alternative fuel industry. BCG matrix is the best positioned for coming up with a strategy aimed at improving the competitive strategy of Ballard Power Systems, therefore, its application. Through the application of the BCG matrix, it is clear that having a huge market share is not necessarily the strategy that a firm requires. When using BCG matrix a business needs to look into its clients and competitors and determine who is giving the best customer value and what it can do to counter this. Recommend strategies Through the use of BCG matrix, it was found that the company has a middle strategic positioning. The BCG matrix shows that the company falls in the question mark sphere. Based on this results the company can apply cost leadership, differentiation or market penetration strategy (Edwards, Ketchen, & Short, 2014, pg. 140, 1). However it is better if Ballard Power Systems carries out campaigns aimed at consolidating its position as opposed to trying to get into new markets thereby growing its market share. There is stiff competition, and therefore the company should focus on maintaining what it already has. The company should focus on Market penetration in the market where it already has the presence. Another sphere that the company should focus on is product development together with concentric diversification. Research and development are key in the alternative energy and therefore the company should invest more in it. This will enable the firm to maintain its current market share while at the same time achieve market development. Socio-cultural issues set to affect the strategy. The world is now ripe for green energy solutions especially with the push for products that hinder climate change. The culture of the world in general towards climate has changed due to these pushes. Ballard Power Systems has taken part in a rigorous restructuring process. The company has engaged numerous partners in its move towards growth in various markets including China and Japan. To penetrate these markets the company is using local companies which it has partnered with (Edwards, Ketchen, & Short, 2014, pg. 175, 2). Basically, humans trust their own, it is therefore a good strategy for Ballard Power Systems to use these partners to penetrate further into these markets. Conclusion Strategic management is one of the crucial skills that a chief executive officer needs to have to be able to run a competitive and profitable business. With competition arising in almost all industries the company that gets it right strategically walks away with majority of the profits. In this paper we have analysed Ballard Power Systems, which is an American company quoted at the NASDAQ. The company operates in the alternative energy industry. Its key competitors include General electric (GE) and Siemens AG ADR. The company was found to be currently executing an expansion-oriented strategy. The company was expanding more in markets such as China and Japan through the use of local companies. A financial analysis was done which revealed some challenges that the company is facing. One of the challenges is diminishing net income and a small debt to equity ratio when compared to the industry. Upon application of the IFE and BCG matrix it was discovered that the best strategy for the company is to penetrate more in the markets where it already operates. Consolidation of the market was recommended for the company. References Edwards, J., Ketchen, D., & Short, J. (2014). Mastering Strategic Management. Read More