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Crown,Cork&Sealin 1989
Industryanalysisand corporatestrategy

Whatarethekeyissues facingCC&Satthetimeof thecase?

Whatarethestrategic optionsCC&Shasopento it?

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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

BallCorporation CrownCork&Seal HeekinCan,Inc. VanDornCompany

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

Actionof substitutesistolimit strategicoptions demandformetalcontainers

Growthofsubstitutes from9%to 18%throughthe80s

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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

Pricingisusedbysteeltodefend theirmarketsharebutitsclearthis isadecliningmarketforsteel(are theyharvestingcash?)

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Whatabouttheeaseof newentry?

New Entry
Morethan100mostly regional firmsenteredtheindustry
Transportationcostslimitgeographical territories to~300miles Capitalcostsfor3piececanproduct linesarerelativelylow($7million1989 dollars) Capitalcostsfora2piececanline ~$25million

Majorreasonfor recentlackof entryisntcapitalcostsor technology itsbecauseofthe trendinindustrymargins.

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So,whenitcomesto rivalry
Thisisbasicallyalowgrowth, moderately capitalintensive, somewhatcyclical,commodity productindustry.
Capitalcostsrelativetovariable costsmeanyouhavetogethigh volume /marketsharewhichputs pressureonprices.

Bottomline:Thisisnotan attractiveindustry(asevidenced bythediversificationofsomeof themajorplayers).

CompetitiveForces Analysis
Marginshavefallensignificantly asrawmaterialscostshave risen.Competitorsfindithard todifferentiatethemselvessince customersbuyprimarilybased onprice.Rivalryishigh.

Substitutes Threat
High

High therearemany substitutesformetal containers,limitingprices& longtermdemandsince alternativepackaging innovationslikepaperjuice boxescaneasilyemerge

Suppliers Power
High

Rivalry
High

Buyers Power
High

High suppliersarealuminum, integratedsteelcompanies, classicoligopoliesthatmaybe verticallyintegrated,becoming bothsuppliersand competitors

High largebreweries,softdrink bottlers,foodcompaniesallbuy inlargevolumes,settingprice, demandingquality&delivery. Haveveryminorswitchingcosts, canbebackwardintegratedinto manufacturingtheirowncans.

Medium barrierstoentry, withcapitalcostssmall relativetothesizeofthe market,soanefficient lowcostplantthatcan weatherlowmargins couldcapturemarket share

New Entrants Barriers

Med

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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

Basedontheexternal environmentalfactor analysis,themetal containerbusinessisnot anattractiveindustry

(andmanycompetitors havediversifiedawayfrom itintogeneralpackaging).

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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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