Crown,Cork&Sealin 1989
Industryanalysisand corporatestrategy
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Keyissues/strategic options
Crownskeystrategicoptionsinclude thefollowing: Acquisitionofsomeorallof ContinentalCanassets; Enteringtheplasticsbusiness,either bybuildinginternalcapabilityor acquiringit; Expandingthemetalcontainerline toreducefocusonbeverageand aerosol; Diversifyintootherpackaging materialsorproductcategories; Diversifyintootherlessrelated businesses; Exitorsellthebusiness.
Aquestionaboutthe externalenvironment
Justwho/whatshouldbe consideredintheindustry? Whoshouldweincludeinthe Competitive/TaskEnvironment?
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Aquestionaboutthe externalenvironment
Justwho/whatshouldbeconsideredin theCompetitive/TaskEnvironment? Crowncouldbeconsideredtobein thepackaging,container,metal container,beverageandaerosolcan industries glass,plastics,paper, cardboard,compositemanufacturers alongwithalltheplayersinthecase couldbepossiblecompetitors. Besttostartwiththemain segmentCrownserves,themetal containerindustry.
Industrybysales
ButwhataboutReynoldsMetals (7%marketshare)?
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Tellmeaboutthe buyers
Buyers
Manyofthebuyers arelarge,powerful companies
Coke,Pepsi, Campbells,Kraft,General Foods
Cansarebought inlargevolumes almostacommodity Buyersdemand&receiveJITresupply Buyerspunishpoorqualitybycutting ordersize Somebuyersshowcrediblethreatofb wardsintegrationintocontainer making,knowledgediffusion(both technicalandcommercial) Can=abt 45%ofcostofsoda,all savingsincancostsgostraighttoprofit
Buyer industriestendtobecompetitive
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Tellmeabout substitutes
Substitutes
Manysubstitutes formetal containers
Glass,plastic, paper,fiberfoil, paperandplasticcombinations
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Tellmeaboutsuppliers
Suppliers
Themajoraluminum (71%ofsales totheindustry)andintegratedsteel (29%ofsalestotheindustry) companies
Aluminumisclassic oligopoly(nearing duopoly)dominatedbyAlcan&Alcoa Somelimitationsonthisoligopolys power slowinggrowth,substitutes, exitbarriersformarginalplayers Reynoldsmaybenefit fromR&D synergies
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Whatabouttheeaseof newentry?
New Entry
Morethan100mostly regional firmsenteredtheindustry
Transportationcostslimitgeographical territories to~300miles Capitalcostsfor3piececanproduct linesarerelativelylow($7million1989 dollars) Capitalcostsfora2piececanline ~$25million
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So,whenitcomesto rivalry
Thisisbasicallyalowgrowth, moderately capitalintensive, somewhatcyclical,commodity productindustry.
Capitalcostsrelativetovariable costsmeanyouhavetogethigh volume /marketsharewhichputs pressureonprices.
CompetitiveForces Analysis
Marginshavefallensignificantly asrawmaterialscostshave risen.Competitorsfindithard todifferentiatethemselvessince customersbuyprimarilybased onprice.Rivalryishigh.
Substitutes Threat
High
Suppliers Power
High
Rivalry
High
Buyers Power
High
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CompetitorsNetProfit Margins
6.00 5.00
ReturnonSales(%)
4.00 3.00 2.00 1.00 WatchoutforthereversedXaxishere! 1988 1987 1986 1985 1984 1983 1982
BallCorporation HeekinCan,Inc. CrownCork&Seal VanDornCompany
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CC&SNetSales
2000 1800 1600 1400 1200 1000 800 600 400 200 0 1981 1982 1983 1984 1985 1986 1987 1988 UnitedStates Europe Allothers
NetSales(millionsofUS$)
So,outlineConnellys strategicleadership
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StrategicLeadership
AsCEOConnellyhadvision,developed strategy,createdaculturetoreinforcethis strategy heledbyexamplethroughhard workandfrugality,settingdemandinggoals, continuallystretchingtheorganization madesurepolicieswereconsistentwithan overalllowcost,focusedstrategy: Crownhadoutstandingfinancial performance byfocusingonthe beverage&aerosolhighgrowth segments; Committedtocustomerservice,justin timedelivery;expandedproductto includecanningmachinedesign,build, service BothmanufacturingandR&D concentratedoncostreduction,also developedcompetencyinmanufacturing fillingequipmentsolutions,expanded internationally; Decentralizedresponsibilityattheplant leveltoempowerplantmanagers,and Connellypaidhimselfalowsalary.
So,howwellhasConnelly done?
16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 1981 1982 1983 1984 1985 1986 1987 1988 ReturnonAverageEquity(%): Returnonsales Returnonaverageassets
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CorporateStrategy Revisited
NewCEOAveryrecognizeddeclining metalcontainerbusiness,growthof plastics,consolidationinthebeverage manufacturers,innovationincan makingtechnologyrequiringadditional capitalinvestment,overcapacity causingconsolidationintheindustry. Averyresponded by1995,stock prices&netincomewerewayup:
HehadacquiredContinentalCaninboth Canada&U.S.andContinentalROW, acquiredConstar(plasticcontainer manufacturer),VanDorn(drawnaluminum foodcontainers),setupjointventureswith canmanufacturersinVietnam&Chinaand others,expandedexistinginternational plants; Closedorreorganizedsloweror unproductiveplants,ultimately restructuredintofourdivisions Plastics, NorthAmerican,International,and Machinery.
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