CF Technologies (CFT) has experienced modest growth from Department of Defence projects, small business contracts, and projects for large companies in its 10 years in the supercritical fluid R&D business. CFT’s founding president, John Moses, is now faced with decisions involving product opportunities and the industry positioning of the company. This executive summary will explore these options and present a recommendation on the way forward for CFT. The integrated internal and external analysis that has provided the foundation for the proposals can be found in the appendices of this report.
Polyvinyl Butyral Resin (PVB) John has identified only one entry strategy for applying supercritical fluid technology to PVB, that being recycling PVB from windshields. With capital investment of $1. 1 million and a significant risk profile, the technology would be worth about $6. 9 million at the pilot plant stage. If CFT managed to deliver the product to market, the return on investment would be around 100% (3. 1 million is needed to get the product to market).
Despite the appeal of this high return, the risk exposure, lack of alterative growth options in PVB, and capital requirements make the other available options are significantly more viable (refer to Apendix B for further analysis). As the case asserts, it’s more cost effective creating technology for application than finding an application for an existing technology. PVB recycling is an example of the latter. There is however the opportunity for CFT to benefit from the research done so far by selling the PVB Recycling technology to Dupont or another interested party.
The proceeds can then be used towards other high yielding opportunities. This approach should be the preferred strategic option for CFT when the product is characterised by high risk for a marginal return and little opportunity to develop other applications for that product domain. Cleaning Agents Supercritical fluid technology has four potential applications in the cleaning agent market: continuous feed devices (CFD), metal pot industry, industrial rags, and petroleum refinery cleanup. SWOT analysis has been performed on each of these options and the other product opportunities (refer to appendices B through to D).
With assistance of a TOWS analysis, they have also been compared against each other using the GE Strategic Business-planning grid (refer to appendices A and E). This examination shows that the petroleum refinery and CFD opportunities to be the most viable and well suited to CFT’s strengths. Both have ready waiting customers in highly rewarding niche markets, and barriers to entry may be available through patents and the specialist industry expertise. Supercritical cleaning fluids have a key advantage over alternative options, as the raw material is cheap and highly available.
While there is a temptation to form a joint venture to pursue these and other products, CFT would be forgoing significant profits and company control. This course of action could also lead to products not being commercialisation, simular to what happen at Arthur Little. Instead, John should raise the capital available to him, combine it with the money received from the sale of the PVB Recycling technology, and use the funds to form an organisation to market these two niche product technologies.
John will need to create a strong management and technical R&D team. It is clear from the CFT value chain analysis that the company has many deficiencies (refer to Appendix F). In particular, the company lacks financial, marketing, and HR skills necessary to grow. The new team will assist John in running CFT and to allow him time to concentrate on the R&D work, where he delivers the greatest value to the business. He must be prepared to lose some operational control of the company in order to take the business forward.
Further to this, John must also reduce CFT’s reliance on his knowledge by building a trusted fulltime technical team to share the R&D workload and protect CFT’s intellectual property from competitor poaching. John and the team must develop a business plan that identifies CFT’s vision, mission, goals and objectives for the future. Certainly past errors in the petroleum refinery market would be corrected with the right team. Although the value of a cleaning solution for industrial rags would be great, as with PVB recycling the risk and expense involved in developing such a solution reduces the attractiveness of this opportunity.
The metal pot industry has also been disregarded as an initial option because the market has been valued lower than the other cleaning opportunities. However, CFT should be able to leverage off the synergies between the cleaning products, SBIR funding, and the customer relationship (Air Force) from the CFDs solution to capitalise on this opportunity with reduced risk and investment in the near future. Aerogels CFT could apply aerogel technology to thermal insulation applications, and water supply and treatment applications.
The most important thing to note about aerogel is that they involve expensive production methods and that the market is still in its infancy, making this a risky option to take at this stage as it would be some time before CFT realised significant ROI. Apart from dealing with NASA directly, the opportunities in aerogels involve CFT investing a large amount of resources into setting up distribution and sales networks, especially in the water supply and treatment market. The company doesn’t have the sales and marketing capabilities to compete with the much more established competition.
However the potential market for aerogels is very large and there are opportunities to profit against competing (and arguably inferior) products. One year after forming an organisation, CFT should start to pursue the potential huge aerogel market opportunities in water supply and treatment, which has the largest market of all the opportunities and is continuing to grow (gaining just 1% of the $60. 4 billion market would result in revenue of $604 million)(refer to appendices C2 and E for further analysis).
By this time CFT should be ready to expand beyond cleaning agents and the aerogel product technology will be moving towards the growth phase of the product life cycle, presenting CFT with reduced risk and better sales growth compared to the current situation. Licensing the technology is the optimal strategic option for engaging in the aerogel market given that it could be applied over the various water supply and treatment market segments and geographically disparate foreign markets.
This would also effectively overcome CFT’s value chain deficiencies in sales and service while allowing management to remain in control of the company and profits at its present location. However, CFT’s available capital, human resources, and ability to take on the risk involved in developing aerogels at the time will determine whether this is a viable option or not. As CFT has not started on a product solution for this market yet, a joint venture proposition involving an exclusive distributorship may be more attractive as it would share the development cost and risk.
A joint venture would also provide CFT’s with the marketing/sales and service activities of the value chain to compete in this market. With this in mind, the strategic partner must have an established international presence, and ideally low-cost offshore manufacturing capabilities, to compete effectively in foreign markets. The alliance should also be able to gain from economies of scale, as this market will involve large product unit volumes. Opportunities in applying aerogel technology to thermal insulation should be foregone for the more attractive water market (refer to appendices C1 and E for further analysis).