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 P R I C E Buyer Power (-) (Strong) Undifferentiated commodity product so low switching costs. (-) Large Powerful buyers (Coke, Pepsi, AnheuserBusch) determine the volume of their purchases. Barriers to Entry (-) Buyers have bargaining power (allows industry competition) (+) High raw material prices (reduce others entry) (-) Low profit margins (unattractive to enter) (-) (High) Small capital cost relative to industry size (low barrier to enter; there are 100 manufacturers in the case) (-) Undifferentiated product allows low product design cost Substitute (-) (High) Many substitutes available (glass, plastic, tetra packs, paper juice cartons) can reduce manufacturing revenues. Rivalry (-) (High) Very competitive industry (Drop in operating margins, aggressive discounts given to retain market share)

C O S T

(-) (Strong) Very few, powerful suppliers who dictate the aluminum selling costs to can manufacturers (they have little bargaining power as they require this RM)

Q U A N T I T Y

(-) Dependent on supplier resources. Suppliers have strong bargaining power (they control the aluminum market. (-) Threat of forward integration by suppliers into can manufacturing due to their vast RM resources (Reynolds).

(+) Long runs of standard items (+) Low changeovers (+) Increase capacity utilization (economies of scale) (-) Buyer consolidation (bargaining power to choose from many can manufacturers) (-) Buyers choose from many can manufacturers (-) Minor switching cost (-) Threat of backward integration from the Buyer into can manufacturing (manufacturers cant integrate forward to make final products)

(-) High capital required to produce a substitute product (glass, plastic) as core capability is metal can production.

(+) Aluminum is the superior raw material for this market (quality, retains taste & carbonation, recyclable)

(-) Major and Minor (2) Competitors compete for RM supply (-) Large orders required to support economies of scale (rivals can take share)

America n National

Coke Anheuser Busch PepsiCo

Alcan

ALCOA Reynolds

Continental Can

Crown
Reynolds Metals
Ball Corp

Van Dorn

Suppliers

Manufacturers

Buyers

Issues Very few & large suppliers in the product chain with high bargaining power over metal can manufacturers in negotiating raw material prices. Large market of Can manufactures (high competition) Tough price competition between manufacturers Fixed-costs are high for manufacturers. High transportation costs & close substitutes available Large & powerful buyers Manufacturers are caught between bargaining power of Suppliers & Customers Profit margins in can manufacturing had been small and shrinking for decades Push towards economies of scale to remain profitable, results in high fixed capital & holdup Suppliers had vast resources and pose credible threats of forward integration (Reynolds) Buyers pose threats of backward integration.

Opportunities Determine best sustainable differentiation strategy Go for opportunities in Aluminum plastic closures & glass containers to acquire the substitute Big competitors are diversifying & relying on economies of scale to remain profitable, follow the trend Counter suppliers threat of forward integration Develop fast reliable order processing Just in time delivery Open smaller plants in various states & get more closer to customers High quality Close to customers to reduce transportation code Customer driven International Sales (developing countries as target market) Bid for Continental Can 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: tinplated cans and crowns. Being a smaller producer in a competitive market, it was important to focus 2

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 del ivery. 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 customers 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 firms 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.

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 Seals strategy? Based on the system of activities that CC&S has created, what customers do you infer would be the focus of Crown Corks attention? How do they create and capture value with their chosen system of activities?
Business Strategy: Crowns business strategy was predominantly focused on their core competencies, flexibility and quick adaptability to customers 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

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 Crowns 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 months 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 Crowns 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 Crowns 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 Crowns business strategy Connelly was able to create and capture value, which is evident from exhibit 5 of the case.