Crown Cork & Seal: Group Work

Group No.8:

Lakhpat Jain, Anurag Pai, Puranjay Jadeja, Murali Madhavan,Pritesh Shah, Rahul Seru, Amar Kumar

Crown Cork & Seal Industry Analysis

What are the key issues/Strategic Option for CC &S ?
Crowns key strategic options include the following: Acquisition of some or all of Continental Can assets. Entering the plastics business, either by building internal capability or acquiring it. Expanding the metal container line. Diversify into other packaging materials or product categories. Exit or sell the business.

Analysing External Environment

A question about the external environment Just who/what should be considered in the Competitive / Task Environment? Crown could be considered to be in the packaging industry; metal containers for beverage and aerosol. In addition they manufacture closures and packaging equipment Major competitors : 1. 2. 3. 4. 5. 6. American National Can Continental Can Reynolds Metals Balls Corporation Van Dorn Company & Heekin Can

The main segment Crown serves, the metal container industry - Industry by Market Share

Sales & Net Income for Crown :

2000
1800 1600 1400 1200 1000 800 600 400 200 0 1984 1985 1986 1987 1988
Sales Net Income

In Million $

Ratio Analysis of CC &S

Year 1984 1985 1986 1987 1988

EPS 1.59 2.17 2.48 2.86 3.37

D/E Ratio 0.54 0.42 0.24 3.06 1.45

ROE 11.42 13.94 14.34 14.46 14.45

ROA 7.31 8.58 8.8 8.67 8.61

Analysing Buyers & Substitute :

Many of the buyers are large, powerful companies Coke, Pepsi, Campbell, Kraft, General Foods Cans are bought in large volumes almost a commodity. Can = about 45% of cost of soda, all savings in can costs go straight to profit Buyer industries tend to be competitive Many substitutes for metal containers Glass, plastic, paper, fiber foil, paperandplastic combinations Action of substitutes is to find a cheaper alternative

Barriers of entry to new players :

More than 100 mostly regional firms already in the industry Transportation costs limit geographical territories to ~300 miles Capital costs for 3piece can product lines are relatively low ($7 million 1989 dollars) Capital costs for a 2piece can line ~$25 million

When it comes to rivalry :

This is basically a low growth, moderately capital intensive, somewhat cyclical, commodity product industry. Capital costs relative to variable costs mean you have to get high volume / market share which puts pressure on prices. Bottom line: This is not an attractive industry (as evidenced by the diversification of some of the major players).

Perception of Market
Based on the external environmental factor analysis, the metal container business is not an attractive industry (and many competitors have diversified away from it into general packaging).

Recommendation
If we were Crown, in spite of negative perception in the market we

would go for expansion as we are historically strong in this field with

sound financials and ownership culture. We feel that with expansion/acquisitions of Capital Can of USA &

Canada at $150 Million, we will become cost effective and

competitive. Post consolidation we would be able to invest more on R&D and

thereafter shall have more options to diversify further as packaging

is potentially emerging industry.

Strategic Leadership of Connelly

Connelly took over as President of Crown in the year 1957 when crown was the verge of bankruptcy. Connelly's first move was to pare down the organization. He ended paternalism and did not shy in giving pink slips. He cut the HQ staff to half and made the company as simple functional organization. In 20 months he eliminated 1647 jobs. I.e. 24% of the payroll. As a part of companys re-organization he discarded divisional accounting practices. He centralised all accounting and cost control to the corporate level. In addition he dis-banded Crowns R & D Facility. Second step was to institute the concept of accountability. He aimed to instil a deep rooted pride of workmanship throughout the company by establishing Crowns mangers as Owner-operaters of their individual business. Each Plant manager was made a business unit responsible for plant profitability and all associated costs. They were also made responsible for Quality and customer service. Next step he took was to slow production to halt and liquidate $7 Million in inventory. He also introduced for sale forecasting with new production and inventory control.

Strategic Leadership of Connelly

Connelly was a charismatic leader who believed in a 84 Hr Week and travelled extensively to set an example and created a huge loyalty of employee towards him. Connelly also developed a Hall-mark Strategy which included control of costs and making the managers owner-operator. This gave him competitive advantagemade sure policies were consistent with an overall low cost, focused strategy. Crown had outstanding financial performance by focusing on the beverage & aerosol highgrowth segments; He did not hesitate to exit from oil can market in 1962 although it held 50% of the market as a competitor developed fibre foil cans which were much cheaper. Committed to customer service, justin time delivery; expanded product to include canning machine design, build, service Both manufacturing and R&D concentrated on cost reduction, also developed competency in manufacturing filling equipment solutions, expanded internationally; Decentralized responsibility at the plant level to empower plant managers, and Connelly paid himself a low salary.

Companys Performance under Connelly :

Thank you !