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 ?

Crown’s 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. American National Can2. Continental Can3. Reynolds Metals4. Balls Corporation5. Van Dorn Company &6. Heekin Can

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

Sales & Net Income for Crown :

1984 1985 1986 1987 19880

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SalesNet Income

In Million $

Ratio Analysis of CC &S

Year EPS D/E Ratio ROE ROA

1984 1.59 0.54 11.42 7.31

1985 2.17 0.42 13.94 8.58

1986 2.48 0.24 14.34 8.8

1987 2.86 3.06 14.46 8.67

1988 3.37 1.45 14.45 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, paper and plastic 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 3 piece can product lines are relatively low ‐

($7 million 1989 dollars)• – Capital costs for a 2 piece 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 company’s re-organization he discarded divisional accounting practices. He centralised all accounting and cost control to the corporate level. In addition he dis-banded Crown’s 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 Crown’s 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 advantage- made sure policies were consistent with an overall low cost, focused strategy.

• Crown had outstanding financial performance by focusing on the beverage & aerosol high growth 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, just in 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.

Company’s Performance under Connelly :

Thank you !