Case 2—CATWOE and the value proposition

This is a case of a new start. The two directors considered the company to be a manufacturer of a replacement engine oil filter for motor cars. The company was founded on a newly developed magnetic oil filter designed to replace the more traditional paper filter used on most car engines, which are, apparently, not very effective at removing destructive, wear inducing, iron metal particles from engine oil. It worked, in so far as it did remove iron/ferrous particles, but they had no evidence of long term improvement in engine wear.

In fact the company did not make anything. The device was made in small batches of prototypes by a local engineering company. The directors had no more experience and knowledge of oil filtration methods than an average car user. Both directors were convinced that every car owner would want to replace their conventional paper oil filter with a magnetic one, but this was not evident in sales figures or underlying demand. In an effort to increase sales the directors decided to market the device to users who they thought would appreciate the reduction in engine wear the magnetic device was claimed, in theory, to make. For example, motor sport teams in the UK and USA. Again, they lacked knowledge and experience of the engineering side of motor sports and so progress was slow.

At some point in conversations about how to improve the business’s prospects, a possible new application was revealed. This involved the removal of magnetic iron debris from coolant and lubrication fluid used in metal machining operations. This shifted the focus of the business toward manufacturers of machine tools and industrial coolants. Industrial coolants are high-tech fluids, and very expensive. They have to lubricate metal cutting and grinding operations, and cool the parts. They also have to inhibit corrosion of the machine tools, which would be mostly made of steel, and be biodegradable. This all adds to the price of the high-tech fluids, but the prices rises further still because they are classed as hazardous waste and have to be disposed of by costly specialist waste processing services.

CATWOE was used to define the root definition of this business system, and this is what we came up with.

It was agreed that the essence of the business was to extend the useful life of fluids, including engine oil, and not the life of machines it was used in. This became the value proposition. Extending the life of the coolant/lubricant fluids, for example, reduced the cost of purchase and disposal as well as maintaining performance for longer. This eventually led to the following core purpose statement.

A system owned by directors A and B (O) designed to make a profit (W) by extending the life and performance (T) of high specification, high cost, technical fluids by removing harmful (ferrous) contaminants.

The business was directed away from individual car users focusing limited resources on a few larger and more specialised companies. I’ve put ‘ferrous’ in brackets to indicate at this time the service was limited to the removal of iron contaminants by magnetic means. The product-process for which the company had a patent was actually a constraint on the potential service they might provide. Potential new revenue streams seemed possible if the company moved into the science of filtration as it might be applied to high-tech liquids/fluids (gas and also powders being types of fluid) and to explore other forms of contaminant and methods of removal.

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