Case #1 - Filter Innovations Inc.
1.) How to comply with government regulations so that FII can sustain their corporate goals and vision of being an innovative leader within their industry.
2.) How to effectively brand FII with the MBR technology within the scope of their current market so that they can sustain their existing customer centric competitive advantage.
3.) FII is behind innovation due to managerial decision of only allocation 5% of EBIT towards R&D.
The waste water management industry is experiencing significant growth around the world and expected to be worth $348 billion by 2010. The opportunities in North America are growing ...view middle of the document...
This range is between 10,000 and 1,000,000 litres of wastewater per day. FII’s direct competition in this “niche” market range for MBR systems is only two companies, Eviroquip and Sanitherm. Both companies are geographically distanced from one another, and from FII, which allows each company to capture the regional markets in their relevant areas. The Porter’s Five Forces analysis in Exhibit 4 states that the “Market is growing and due to barriers of entry there seems to be enough customers for the competing firms, hence lowering the competition intensity.”
Looking at FII’s current financial position, they have the capability to begin their expansion into MBRs going forward into 2009. Their current ratios as compared to industry standards are shown in exhibit 1. For every dollar of liabilities that FII has, they have $2.19 of current assets to counter it which is much higher than the industry standard of $1.20. This means that they have enough current assets to cover their liabilities comfortably, and of that $2.19 of current assets, $1.72 of it is already cash. This means they would not have to try to liquefy their assets to cover their current liabilities, they already have enough cash to cover them.
Also, FII carries no long term debt, so they do not have to try and cover those obligations. This is portrayed in their debt ratio as for every dollar of assets FII has there is only $0.45 of liabilities. In this respect, they can easily afford to incur more debt as they have enough assets to cover it. In terms of the actual gross margin that FII receives from their sales, their profit is 37% of their sales as opposed to the 29% that is the industry standard.
In order for FII to be successful with implementing the MBR systems they will need to become very knowledgeable in all aspects of MBR, and brand itself as a reliable supplier of MBR. In order for FII to fit its MBR expansion with its existing “customer-centric outlook” they will need to have the knowledge to not only install the new MBR system but also provide the same level of customer service that they do with their existing product line. This is very important to their competitive advantage as ongoing service and support will allow them to win contracts. FII will need to hire a technology expert that already has experience in MBR systems and for this they may look to Europe because Europe is more advanced in this technological aspect.
A decrease in net income had an adverse effect to R&D because 5% of EBIT is allocated towards further research and due to the decline in net income, FII’s R&D budget decreases as well. Therefore, FII is losing their innovative edge within the industry. This is evident as they are currently behind in the MBR technology.
A.) Status Quo
If FII were to go into 2009 without investing into MBR technology, they will continue to lose revenue due to the new government regulations making some of their products and services more...