Filter Innovations Inc. (FII) was created by John Dragasevich in 1992. It was based out of Toronto, Ontario and supplied small industrial water filtration systems and environmental products. It focused mostly on projects that required processing below 1 million litres per day. This was because competing companies were more interested in projects that required processing above 1 million litres per day.
Problem Statement
The problem Dragasevich faces with FII is that some of their current wastewater treatment designs did not meet some industrial and municipal guidelines. There is a new technology called membrane biological reactor (MBR) that FII could invest in to help them keep them on the forefront of the technological market of wastewater filtration. However, this technology will have a very large upfront cost and FII will not have complete knowledge and experience with the system for 2-5 years. Dragasevich has to decide if they want to have poor project profits for a few years before they start to create large profits, or if they want to wait and see how the MBR market escalates.
SWOT Analysis
Strengths
FII is very proud of their knowledge and expertise in the field of filtration systems. Customers look to FII for these things. It shows that they are dedicated and want to give their clients the best possible service available. It also gives customers the feeling of safety that they will not be disappointed with FII’s work.
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FII hopes customers view their company as a “one-stop, shop for all filtration needs”. Not only does FII offer pre-built filtration systems, they also supply custom systems based on clients’ specific needs, as well as a wide range of environmental products to support their filtration systems. Clients would be more willing to shop at a place that can save them time from searching for multiple companies to do one job.
FII strives themselves on being environmentally friendly. A corporate goal that was personally important to Dragasevich was that social and environmental responsibilities were a top priority for FII. Any current or new technologies designed by FII were designed to meet and exceed current industrial and municipal guidelines.
Weaknesses
With only 14 staff current employed with FII, they were a very small company. With equipment serving over 1500 business sites, FII did not have a lot of room for expansion with the current number of employees. They would not have the current staffing to be able to take on a project like the MBR.
FII only focuses on projects with less than 1 million litres of processing a day. This severely limits their target market. If they were going to implement the MBR into their business, their target market would be current clients. They would have to convince them to buy a completely brand new system for their filtration needs. This could be very difficult as they wouldn’t want to waste so much money on upfront costs when they have a system that still works.
Opportunities
The current technologies of FII are not meeting all the guidelines for industrial and municipal. A smart move would be to train current employees and sell the MBR system. MBR is currently the best environmental option for wastewater treatment. As well, it was anticipated that within a few years, the technology would advance so that MBR could use reverse osmosis, which would be able to turn wastewater into potable water. This would be a huge product incentive for clients because they would save money on water usage.
FII could start to cater to clients who need more than 1 million litres of processing a day. With their expertise and knowledge of filtration systems, they could easily make the step up. They even create custom filtration systems based on clients’ needs, so they wouldn’t have to completely redesign their current base models. FII is worried that Siemens Water Technology and Zenon Membrane Solutions will be too much of a competition. With the small company size of FII, clients may feel a more emotional connection with the company and feel like they actually care about their problems.
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Threats
Larger companies like Siemens Water Technology and Zenon Membrane Solutions dominate the Canadian filtration industry. They mostly focus on processing of over 1 million litres a day. This is making FII look for clients who need processing of under 1 million litres a day. FII is being sorely limited based on competitors.
With the always changing industrial and municipal guidelines, certain technologies that FII created are becoming obsolete. Any current inventories they have of these technologies are basically useless and are lost revenue and inventory. If they do not spend money and time creating new technologies, they will start to lose clientele.
The MBR itself is a threat. As stated in the last threat, some of FII’s current technologies are becoming obsolete. If they want to be a leader in filtration systems, they will have to use the MBR systems. However, companies like Sanitherm and Enviroquip are already part of the MBR market, and they already collectively held 1/3 of it. They had complete training and expertise in the product, which Dragasevich believes will take 2-5 years for FII to accomplish. By the time FII become an expert in MBR, Sanitherm and Enviroquip may hold an already larger portion of the market.
Alternatives
Dragasevich has two alternatives to consider. One of the alternatives would be to implement the MBR systems into their sales immediately. With the current industrial and municipal guidelines always changing, Dragasevich needs to adopt new technologies to be a leader in the filtration market. The MBR would be a great product to invest in. MBR is currently the best environmental option for wastewater treatment. As well, based on Dragasevich calculations, he will create a large net income from his best case scenario. (See Appendix A) And with his estimation that the sales will grow to millions in coming years, the income will only get bigger. Even his worst case scenario shows a net income for the first year. (See Appendix B) Dragasevich estimates that it will take the company 2 to 5 years to be fully knowledgeable and an expert in MBR technologies. They need to have a head start if they want to be a leader in the filtration market.
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However, even though they’re still making money, it can be very time consuming. Dragasevich believes he will take 20% of his time to focus on the MBR. This means that he’ll need to take his attention away from 20% of his current activities. As well, every one of the employees who will directly deal with the MBR must become knowledgeable and an expert in the system. They will have to take time away from their current sales to study the MBR systems. This will be both time and money consuming.
The second alternative would be to not worry about the MBR systems until all of FII’s current technologies become obsolete. FII still has current systems that they sell that are accepted by industrial and municipal guidelines. FII could reap the benefits of these current systems, wait until they are obsolete, and then adopt the MBR. They would still be creating positive net incomes for the company, without wasting time on training for MBR systems.
This however would mean that FII would be behind in the MBR market. With two companies already holding a combined 33% of the MBR market sales, FII would have a lot of ground to make up. They would also lose a large amount of revenues as they won’t have a supplementary product to offer while they gain the knowledge and expertise of the MBR systems.
Recommendation and Implementation
I recommend Dragasevich immediately start the process of implementing the MBR systems into the current company. As previously stated, his current technologies are starting to become obsolete. He will need to either invent new products, or adopt the MBR. Seeing as the MBR systems are the best environmental treatment for wastewater, and they will be able to make potable water using reverse osmosis in the next few years, it is FII’s best choice.
To be able to do this, Dragasevich must first scrap 20% of their current system designs so they can focus on the MBR. The ones that are the most close to becoming obsolete are the obvious choices. He will then have to hire a technology expert. Dragasevich should wait on the support person until he knows that there will be a sales year of $500,000. If he hired the support person without sales of $500,000, he could be possibly losing revenue by over compensating.
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FII doesn’t have enough space to work in. Dragasevich needs to rent out another space in the building to have sufficient room for the MBR. He will then have to purchase $25,000 of starting inventory. This is only because the company he will be dealing with will only supply the goods if he purchases a base amount of $25,000. Dragasevich doesn’t like to have a large inventory to begin with.
While all of this is going on, he will have to have his sales force trained so they are both knowledgeable and experts in the MBR systems. Each person should read a training manual on the systems and how to properly market the products for maximum customer relations. They will then start to sell the product, but won’t be expected to be completely ready to sell it. The only way to become an expert is through practice.
Dragasevich will then need to start contacting current clients that have close to or already obsolete water systems and start selling them MBR systems. These will be their biggest clients to begin with. With a solid customer relations base already built, they won’t have to build their trust and spend months trying to sell to one client. They will be able to sell their product much more quickly, turning a quicker profit.
What Did I Learn?
Dragasevich is an amazing entrepreneur. He started the company from the ground up and has created a very successful business. One of the first things I noticed when I read the case was that he took a mature market, but found a niche in it. Most companies for wastewater filtration will not even consider projects less than 1 million litres a day because they aren’t a high profit maker. Dragasevich decided to start a small company and focus solely on that market. In turn, he has grown the company to the point that he can collect a $150,000 pay check (20% of his time equates to $30,000), and still have a net income to add to retained earnings.
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Markets where the product becomes obsolete quickly can be very difficult. If you do not keep innovation at its peak, you will not strive. Dragasevich was very conscious of this and was always creating new products.
