1. Is the metal container industry an attractive industry? Why or why not?

Our Matrix is from the perspective of metal can producers, such as Crown Cork & Seal. Based on

our five-forces model analysis we created a matrix to show (+) and (-) attributes of metal can

producers. We determined mainly negative attributes, concluding that this is not an attractive

industry. We have identified issues and opportunities as described below.

Supplier Power Buyer Power Barriers to Entry Substitute Rivalry

P (-) (Strong) (-) Buyers have (-) (High) (-) (High)
R Undifferentiated bargaining power Many substitutes Very competitive
I commodity product so low (allows industry available (glass, industry (Drop in
C switching costs. competition) plastic, tetra packs, operating margins,
E (-) Large Powerful buyers (+) High raw paper juice aggressive discounts
(Coke, Pepsi, Anheuser- material prices cartons) can reduce given to retain
Busch) determine the (reduce others entry) manufacturing market share)
volume of their purchases. (-) Low profit revenues.
margins
(unattractive to
enter)
C (-) (Strong) Very few, (+) Long runs of standard (-) (High) Small (-) High capital
O powerful suppliers items capital cost relative required to produce
S who dictate the (+) Low changeovers to industry size (low a substitute product
T aluminum selling costs (+) Increase capacity barrier to enter; (glass, plastic) as
to can manufacturers utilization (economies of there are 100 core capability is
(they have little scale) manufacturers in the metal can
bargaining power as (-) Buyer consolidation case) production.
they require this RM) (bargaining power to (-) Undifferentiated
choose from many can product allows low
manufacturers) product design cost
Q (-) Dependent on (-) Buyers choose from (+) Aluminum is (-) Major and Minor
U supplier resources. many can manufacturers the superior raw (2) Competitors
A Suppliers have strong (-) Minor switching cost material for this compete for RM
N bargaining power (-) Threat of backward market (quality, supply
T (they control the integration from the Buyer retains taste & (-) Large orders
I aluminum market. into can manufacturing carbonation, required to support
T (-) Threat of forward (manufacturers can’t recyclable) economies of scale
Y integration by integrate forward to make (rivals can take
suppliers into can final products) share)
manufacturing due to
their vast RM
resources (Reynolds).

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 America
n
National
Coke
Continental
Alcan ALCOA Can
Anheuser
Crown Busch
Reynolds
Reynolds Metals
Ball Corp PepsiCo

Van Dorn

Suppliers Manufacturers Buyers

Issues Opportunities
Very few & large suppliers in the product chain with Determine best sustainable differentiation strategy
high bargaining power over metal can manufacturers in Go for opportunities in Aluminum plastic closures &
negotiating raw material prices. glass containers to acquire the substitute
Large market of Can manufactures (high competition) Big competitors are diversifying & relying on
Tough price competition between manufacturers economies of scale to remain profitable, follow the trend
Fixed-costs are high for manufacturers. Counter suppliers threat of forward integration
High transportation costs & close substitutes available Develop fast reliable order processing
Large & powerful buyers Just in time delivery
Manufacturers are caught between bargaining power Open smaller plants in various states & get more
of Suppliers & Customers closer to customers
Profit margins in can manufacturing had been small High quality
and shrinking for decades Close to customers to reduce transportation code
Push towards economies of scale to remain profitable, Customer driven
results in high fixed capital & holdup International Sales (developing countries as target
Suppliers had vast resources and pose credible market)
threats of forward integration (Reynolds) Bid for Continental Can
Buyers pose threats of backward integration. Focus on core competencies

2. Describe how Crown Cork and Seal has strategically positioned itself to deal with key
industry forces. Explain why they have made those choices and how their actions respond to
industry structure issues.
Crown strategically positioned itself in following functional areas and that helped them mitigate the

unattractive features in the industry.

Product choices: Crown recognized its core competencies and focused on only two products: tin-

plated cans and crowns. Being a smaller producer in a competitive market, it was important to focus
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on a certain number of products and build competencies with those rather than spreading focus across

many product lines. An example of this would be Crown exiting from the oil can market instead of

spending resources on competing in this changing market. They also focused on the “hard to hold”

applications in their domestic market of beverage cans (taste) and aerosol cans (pressure). They

designed equipment to specifically meet the needs of soft drink producers and improved printing

lines to allow for quick design changeover to accommodate JIT delivery.

Marketing and Service: Since there was nearly no differentiation at the product level, Crown

focused on providing high-levels of customer service to provide fast technical assistance and problem

solving in person, at the plants. They were customer driven and focused on maintaining close

customer relationships with improved speed, quality, efficiency, and flexibility.

Production Process: In 1957, Crown had a serious problem related to antiquated machinery and

poorly located manufacturing facilities. To remedy this, Crown invested in new manufacturing

facilities and technology. Additionally, crown instituted a total quality improvement initiative and

enacted inventory policies that allowed it to serve customers’ needs for JIT delivery. They focused

on reducing mistakes to improve efficiency and reduce costs. They also spread out domestic plants to

be closer to many customers (not focusing on just one) to reduce transportation costs.

Research & Development: Crown chose to avoid basic research and instead focus R&D on

enhancing existing skills in die-forming and metal fabrication, increased adaptability and the ability

to quickly change products to customer’s needs. This approach paid off with two-piece cans: Crown

beat all of their competitors to market and had greater production capacity than anyone else.

Finance: Crown first sought to deal with its short-term debt obligations and then focus on reducing

the firm’s debt/equity ratio, which went from 42% in 1956 to 5% in 1986 (p. 12), and by 1988 their

debt was less than 2% of their total capital. Crown also set out to plug its cash drains by ending

preferred dividends and repurchasing stock. This improved their financial strength resulting in

increased EPS by 1988.

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International Strategy: Firms seeking international business wish to have international revenues

grow enough that domestic revenues are not the overwhelming majority. Crown achieved this,

reporting in 1988 their international business which accounted for 44% of sales and 54% of operating

profits (p. 12). They had “pioneer rights”, allowing them to be the first-mover in a developing nation

and getting a foothold by opening Crown production facilities. Crown could save costs by

transferring outdated domestic production equipment to these new plants abroad. They also focused

on retaining National management in those countries, understanding that locals have a grasp on the

unique aspects of supply and demand in their market.

3. What is Crown Cork and Seal’s strategy? Based on the system of activities that CC&S
has created, what customers do you infer would be the focus of Crown Cork’s attention?
How do they create and capture value with their chosen system of activities?

Business Strategy: Crown’s business strategy was predominantly focused on their core

competencies, flexibility and quick adaptability to customer’s needs (effort was on growth segments

beverages). Having many smaller plants & extra can-forming lines helped them to be the lowest cost

producer in each local area (instead of competing nationally). Not relying on an economies of scale,

they avoid being dependent on the quantity demanded by Buyers, so they were not severely affected

when buyers started making their own cans, whereas other can producers took a major hit. Also by

deciding to stick with steel cans (till 1980) they were able to save premium costs charged by only

few suppliers of Aluminum.

Crown insisted heavily upon quality of the product and speedy service compared to any of its

competitors along with customization. With their “follower” strategy they saved great deal of money

on basic research, instead focusing on improvement of existing lines.

Organizational Strategy: Connelly leaned up the organizational workforce through centralizing

corporate functions such as accounting, at the same time decentralizing decision-rights to the

Crown managers as “owner operators” of their individual businesses to institute the concept of

accountability. Plant managers were given responsibility for plant profitability including allocating

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costs. The performance measures were tied to quality and customer service. Through organizational

restructuring, Connelly cleansed the existing paternalistic organizational culture that was part of the

reason for the Crown’s near bankruptcy.

Operational Strategy: Working closely with the customers to understand their needs for heavy

customization such as plant layout of a food packer or redesign of a dust cap for aerosol packager;

Investing in total quality improvement process (high quality product with minimal cost); Holding a

month’s worth of inventory to meet customer demands; Maintaining close proximity to customers for

quicker service; Maintaining exceptional customer service since it is evident that the CEO (Connelly)

acted on occasion as Crown’s salesman, visiting the customers and hearing their gripes first hand.

International Strategy: Connelly focused on growth in developing countries with pioneer rights,

allowing national management, and recycling older equipment to these nations. By 1988 the 62

foreign plants generated 54% of Crown’s operating profits. By growing in less developed countries

they saw great opportunities for future revenue whereas for their competitors those places were too

small.

Their strategy was an example of assuring survival in the face of a changing environment. This was

reflected in their overall value chain that involved purchasing (high quality material from suppliers),

inventory holding (reliable supply even during metal shortages), special designs, manufacturing

(consistency, quality & flexibility), distribution (speed & flexibility of delivery, JIT) and sales & tech

support (maintain customers & quality tech advice). Between 1956- 61, sales increased from $115 M

to $176 M; During 1960s, company averaged 15.5% increase in sales and 14% increase in profits

over the next 2 decades (exhibit 7); Although there was a brief slump in sales and profits during early

1980s, Crown rebounded with annual sales growth average of 7.6% from 1984-1988 and average

profit growth of 12% (exhibits 8 and 9). Through aligning various strategies (Org, Operational,

International) with Crown’s business strategy Connelly was able to create and capture value, which is

evident from exhibit 5 of the case.