Crown 6s5j37

Crown Cork and Seal Company: Summary of Case and Key Questions Company Background Information and Historical Context By 1977 The Crown Cork and Seal Company was the fourth largest producer of metal cans and crowns. Under the leadership of John Connelly, the company had transformed from near-bankruptcy in 1957 to becoming a formidable force in the domestic and international metal container market. By 1976 Crown had revenues of $910 million, $343 million of which came from international markets – making them the largest international producer. They derived 65% of total sales from tin-plated cans and 29% from crowns; the remainder of their business came from bottling and canning machinery. In of product categories, cans were categorized as follows: Food cans, beverage cans, pet foods and general packaged cans. The biggest growth category was beverage cans which comprised of soft drinks and beer. At the time of the case, Crown was considered to be extremely successful – their return on sales was twice that of their three largest competitors, and they enjoyed the highest profit growth over the last 10 years. Industry Characteristics and Value Chain Customers: 80% output came from food and beverage companies who maintained at least two suppliers and had significant power of them. Competition: Crown’s current market share was 8.3%.

Their three biggest

competitors were American Can (16.6%), Continental Can (18.4%) and National Can: (8.7%). There also faced significant threats from customers backward-integrating into the supply chain (e.g. Campbell soup started making their

own cans) and from

aluminum producers like Alcoa grabbing market share. Suppliers: Big U.S steel companies and new entrants who supplied aluminum, fiberfoil and plastics. Crown’s Strategy Philosophy: Relentless focus on core strengths: product forming and fabrication competencies crowns. Since R&D

lines were based on metal

with a single-minded focus on tin cans and

was not their strength, they decided to be the “second” player,

learning from other firm’s mistakes and successes.

Culture: Customer-centric culture. Plants were spread out to be close to customers – this reduced transportation

costs and allowed the company to react to customer needs

quickly. Furthermore, each plant served multiple customers. Scope: Lots of emphasis was placed on international expansion, to tap into markets where packaged foods were being rapidly adopted. Operations: Plant sizes were small allowing them to be nimble and flexible. Key Industry Trends The threat of self-manufacturing from customers. Threat of new packaging materials – in particular aluminum competitive alternative to steel cans costs due

started to become a

for a variety of reasons (reduced transportation

to lighter weight, safety, environmental impact, etc.).

Also, competition

began emerging from fiber foil and plastics. Packaging Revolution -- With companies differentiating on packing, two problems emerged: 1 aluminum and plastics became better contenders for variability in packaging design Customers started investing large amounts of R&D dollars in packaging making it harder for the smaller suppliers to compete. Future Issues Ozone scare that aerosols cause permanent damage to the ozone layer. Regulation around non-returnable cans –resulting in increased

popularity of

aluminum (aluminum had a larger network + higher recycle value). Strategic Questions: How would you characterize this industry? How attractive

or unattractive is this

industry? What do you think are the active ingredients that contributed to Crown’s success? What do you think are the biggest threats to Crown going forward? Do you think Crown should invest in aluminum? Do you think Crown can continue to grow by pursuing the same strategy? If you don’t think so, what should Crown do to win in this industry?

Report 2 The changes taking place in the metal container industry at the time of the Crown, Cork and Seal case using Porter's 5 forces can be described as follows: Current Players There was a high concentration of market share held by five companies in the metal can industry. Collectively, the five companies held 61% of the market, with the remaining 39% shared by approximately 100 firms. With the five firms holding a large market share, the competitive environment becomes more like a monopoly and therefore less competitive. The rivalry among the five firms seems to have intensified due to the following observed industry characteristics: 1.

The little growth potential for metal cans in the 1990s and the analysts'

expectations of plastics as the "growth segment for containers." 2.

Since they all produced mostly two-piece cans and catered to the metal beverage

containers market, there appears to be a low product differentiation among the five firms. 3.

The asset specificity of the industry creates a high exit barrier where the

equipment is highly specialized that the firms may have a difficult time selling to buyers from other industries. 4.

Major customers producing their cans in-house that ed for approximately

25% of the total can output in 1989. Barriers to entry One of the barriers to entry in the metal can industry at this time is the monopoly held by the top five firms. It would difficult for a small start-up firm to have any real significant impact on obtaining market share unless they come in on a large scale or if they have proprietary know-how. number 3 above. Suppliers

Another barrier would be asset specificity as mentioned in

The suppliers in the metal can industry are considered powerful since it is dominated by basically 3 aluminum companies and are a highly concentrated industry in itself. Although steel is another raw material used, its usage had declined over the years as aluminum was lighter, were of better quality, less effect on product taste, has "superior lithography qualities" and less costly to recycle. Also, the suppliers do not have to compete with other products for sale to the metal can industry. The aluminum and steel companies serve as a check and balance for each other. The suppliers also pose a threat of entering into metal can manufacturing, such as Reynolds Metals, which make them a powerful supplier.

Buyers The buyers in the metal can industry could be considered to be powerful as they are concentrated on the beverage and food/general packaging industries and the metal cans purchased are basically a standard or undifferentiated product. Because 45% of the total cost of a packaged beverage is the can itself, the beverage companies maintain relationships with more than one supplier in the metal can industry. Substitutes The possible substitutes for the aluminum beverage cans are plastic packaging containers, glass bottles and steel cans. The prices of the aluminum beverage can be controlled by the prices of the possible substitutes.

Report 3 Executive Overview In April of 1957, when Crown Cork & Seal was on the edge of bankruptcy, John Connelly took over presidency with intent to save the company. By the end of 1957, Crown had "climbed out of the coffin and was sprinting." Connelly's unique leadership is what contributed to the success of Crown. In May of 1989, Connelly stepped down from his position as chairman appointing his long-time disciple William Avery as chief executive officer. Avery had plans to assess Connelly's long-followed strategy because of the industry changes that were taking place. Since Connelly got into the business in 1957, the metal can industry had been greatly redefined as both suppliers and customers of can makers moved into can-making themselves. With the changes that were taking place, Avery wondered if it would be a good idea for Crown to bid on all or part of Continental Can (one of their competitors), whose operations were up for sale. Avery was also faced with the decision to break Crown's tradition and increase its product line beyond the manufacture of metal cans and closures. Little growth potential was seen in the metal can industry, and plastics were forecasted as the growth segment for containers. Crown's competitors had been expanding aggressively in a variety of directions, and Connelly remained careful and thrived. Because Crown had done the same thing for so long, Avery wondered if it was time for them to change. If Crown acquired Continental Can Canada, Canada would become Crown's largest single presence outside of the U.S. and would double the size of Crown's domestic operations. However, most mergers in this industry had not worked out well, and Avery had concerns about taking two companies from completely different cultures and bringing them together. Analysis The use of Porter's 5 Forces Model gives an analysis of the industry for Crown Cork & Seal and an overview of where it is positioned within it. There is a strong competitive force among the top competitors within the metal container industry. This is because the industry makes up 61 percent of all packaged products in the United States

and is also only dominated by five firms; which is very minimal compared to an industry as restaurants. The 4 rivaling competitors of Crown, making up the rest of the industry, include: American National Can, Continental Can, Reynolds Metals, and Ball Corporation. The threat of new entrants into the metal can industry is quite weak though. This is due to the fact that start-up and manufacturing costs are very high. Can production lines can cost anywhere between $16-25 million making it very difficult for the average Joe to start a company from ground up. This threat however, is quite opposite from the threat of substitute products. This threat is very strong for this industry, which results mainly from the existence of plastic and glass containers. The growth of plastic containers is the industry's major worry; mainly because it is more lightweight and convenient than metal cans or glass by consumers. Analyzing the competitive force of suppliers and buyers are the last of Porter's analysis. The force of suppliers in the metal can industry is normal to strong. This is because, although it is very inexpensive for companies to switch suppliers from aluminum to steel, the consumer actually prefers the aluminum can.

It is more

lightweight and economical to recycle. A strong force of suppliers is also a result of the metal can industry only being supplied by 3 aluminum producers. The force of buyers is normal to strong as well because the soft drink and beer companies are very large and purchase a sizable amount from the metal can industry. It is also indicated by the fact that those beverage companies purchase their packaging from a few large firms in the industry. It would be a definite strong force if they purchased from a large number of firms. By looking at Porter's 5 Forces Model, it is noted that Crown Cork & Seal lies within the five dominant firms of the industry. This indicates that the company does have the opportunity to compete and even become the leader of the industry. To be the leader; however, will depend on Crown's strategy. Problem Statement One problem that Crown Cork and Seal faces is that the industry is becoming more competitive through acquisitions and mergers. These acquisitions and mergers in

the 1980s served to shift, as well as consolidate power, at the top of the county's leading manufacturers.

Some of these acquisitions and mergers include such companies as

American National Can and Continental Can, which are two major competitors for Crown Cork and Seal. Peter Kiewit Sons Inc. purchased Continental Group in 1984, and turned sales of 3.3 million in 1988. Another problem serving Crown Cork and Seal is that the industry has become less dependent on can sales alone. They have diversified across the spectrum of rigid containers to supply all major end-use markets (food, beverages, and general packaging), others diversified into non-packaging businesses such as energy (oil and gas), and financial services. The product line of the worlds largest can maker, American National Can, is steel cans, glass containers, and caps and closures served the major beverage, food, pharmaceuticals, and cosmetics market. This goes to show that even the world's largest can maker doesn't solely rely on the sales of its cans. Another reason why Crown Cork and Seal should not to depend on can sales alone is the rise of in-house manufacturing and plastics. Production of cans at "captive" plants-those producing cans for their own company use-ed for approximately 25% of the total can output in 1989. Many brewers found it advantageous to invest in captive manufacturer because high-volume, single-label production runs made them more profitable. This trend is taking away a lot of business from the can manufacturer industry, weakening future growth potential. Plastics were also the growth leader in the 1980s. They went from 9% market share of the container market in 1980 to 18% in 1989. Recommendations Crown Cork & Seal, under the supervision of Bill Avery, should step outside the traditional strategic boundaries and draft a new blue print for the future. Over the last few years, many of the companies in competition with Crown have either merged with another company or began pursuing other ventures outside the can industry. All are still holding strong as reputable companies. If Crown continues to just stay put where they are and continue making what they are producing now, the growth of the company will continue to diminish.

We recommend that Crown merge with Continental Can to build a company with unlimited possibilities. With the work ethic already instilled in the employees of Crown and with the direction that Bill Avery has receive from innovator John Connelly, success from the merger could be very likely. By merging with Continental, Crown would expand their market share in numerous other countries. Although it may take a lot of time and energy, we believe that a merger would prove profitable in the end. Options Since the business of cork sealing and aluminum production is so diverse and expansive, there are several options of ways to take control of the market. The first option would be to merge. Merging with a major distributor and making the Crown Cork and Seal Company a subdivision of say a company like Coca Cola, would have a great impact on the sales and conditions of selling products to consumers. Combining two great assets to the consumer market would make distribution easier; make flow of products in and out of factories flow faster and smoother than being shipped between check points of the production process. Another option would be to switch to plastics. This is a much diversified market as well. Plastics for around one half of the distribution for almost all of the major distributors listed in our text. Switching to plastics might be an alternative solution at the moment, but plastics may not always be as lucrative market as everyone believes it is. Another option is to simply just stay put. Don't diversify into any other type of business, or merge with another company and continue day to day sales and services as normal. The last option that we came up with is to combine merging and switch to plastics. This would work on both ends of the spectrum of alternatives. At one point we are going to merge with other companies and continue to make the same products, but at the same time we are going to switch to plastics so that we can diversify into the market more. If predictions end up being right, that corks for wine and other bottles will soon not exist and everything will be going to twist offs or pressure sealed, then it might be a wise decision to switch to plastics and merge with a large corporation.

Implementation and Control In order to create a strategic plan of implementing our plan to merge, Crown Cork and Seal should swap and interlace managers from both companies in order to create balance between manager levels at each company. The Board of Directors will be consolidated with cross-over training and implementation. Training sessions will be held for all of the employees. A SWOT analysis will be conducted for each location, resulting in the shut down of unprofitable plants and the consolidation of more human and financial capital. This process will be done by selling off the equipment and machinery of the weaker plants. However the original strategy of Crown Cork and Seal will remain in action. The expected results of implementing this merge will have short-term and longterm effects on Crown. The short-term effects will be the loss of money from the acquisition of Continental Can Company. The long-term effects beyond a five year scope, the company will aim to become the leader of the metal can industry.