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Question 3c

Stokeness Engineering (Stokeness) is developing hydrogen fuel cells for use in powering large motor vehicles such as buses and trucks. They will replace standard petrol/diesel engines. The fuel cells have a clear advantage over these older technologies in having lower carbon dioxide (a greenhouse gas) emissions. The governments of many developed countries are keen to see cuts in such emissions and are supportive of a variety of possible technological solutions to this issue (such as fuel cells, electrical batteries and compressed natural gas).

These alternate power technologies would be fitted by the major international vehicle manufacturers into their vehicles for sale to their customers. The vehicle manufacturers will need to form a close partnership with any engine producer in order to make their technologies compatible and this has already begun to happen, with two of the major manufacturers signing deals with other engine makers recently.

Stokeness’ mission is to provide world-leading, reduced-emission, fuel-efficient power products for the motor industry in order to optimise shareholder returns. Stokeness has existed for only five years and is owned by its management and venture capitalists (VCs). The management were all engineers who had been working on the basic research associated with new fuel technologies and saw the opportunity to commercialise their expertise. Stokeness is highly regarded in the industry for its advanced, efficient fuel cell designs. As a result, the VCs were eager to invest in Stokeness and have assisted by placing experienced managers into the business to aid the original engineering team.

It takes five to ten years to develop a viable product for sale in this motor market. Thus, the VCs have stressed the need to analyse competition and competitive advantage in order to understand how to make the business profitable in the long term. A major problem that needs to be overcome with any of these new technologies is that there must be an infrastructure accessible to the end users for refuelling their vehicles (as the petrol station chains do for petrol engine vehicles at present). Governments have indicated their desire to support the development of such technologies to address environmental issues and to try to establish new, high-value industries in their jurisdiction. They may do this through tax breaks and investment to support the development of the refuelling infrastructure.

Production of Stokeness’ fuel cells uses a special membrane that requires rare and expensive elements. Also, it has partnered with two other engineering firms to subcontract the production of certain components in the fuel cell.

Stokeness has had to share much of its fuel cell design with these firms in order to overcome certain engineering difficulties.

There are a number of companies developing fuel cells but Stokeness is believed to have a two-year lead over them and to be only three years away from commercial launch. Also, there are a number of start-up companies developing the other technologies mentioned above, as well as large, existing diesel and petrol engine manufacturers who are constantly reducing the emissions from their existing engines.

The chief executive officer (CEO) of Stokeness wants to understand the external business environment and its effect on performance management. She has used Porter’s five forces model herself in the past for strategic decision-making but here she wants it focused on performance management. In particular, she wants your analysis of the current competitive environment to result in advice about performance management and a properly justified recommendation of one performance measure for each of the five force areas. Stokeness already uses market share to measure its competitive position but the CEO is worried about the way this is calculated, in particular the definition of the market. She has asked for your comments on this as you are a performance management expert.

Required:
(c) Assess the risk appetite of the venture capitalists and discuss how this might impact on performance measurement at Stokeness. (5 marks)