Article: Crown Cork & Seal in 1989
1. What key strategic issues face Avery in 1989? What strategic options are open to him? Avery faced strategic issues about whether Crown should break with tradition and expand its product line beyond the manufacture of metal cans and closers. And he had to decide whether or not to get involved in the bidding for Continental Can. The acquisition of Continental Can Canada would make Canada Crown's largest single presence outside of the United States. Also it would double the size of Crowns domestic operations.
2. How attractive is the metal container industry? (Try to use Porter's 5-forces model.) l Bargaining power of buyers
The products are indifferent so it means there is low switching cost. Also buyers are very large and become more concentrated through consolidation. And they buy in large amount and maintain relationships with more than one can supplier. In addition, there can be the threat of backward integration. But metal producers are unlikely to put the threats of forward integration => High l Bargaining power of suppliers
There are three largest aluminum suppliers; Alcoa, Alcan and Reynolds Metal.
Aluminum is classic oligopoly dominated by Alcan and Alcoa. Reynolds may benefit from R&D synergies. Also there is a threat of forward integration. =>High l Threat of new entrants
It seems that barriers to entry are low. Product differentiation and switching cost is not that high. Capital costs for three-piece can product lines are relatively low but capital costs for a two-piece can line is $20-25 million. =>moderate l Substitute
There are many substitutes for metal containers- glass, plastic paper, and paper-andplastic combinations. Switching cost is low. => High l Rivalry
Industry is dominated by 5 major firms. The largest is American national can (25%),
Continental can (18%), Reynolds metal (7%), Crown cork and seal (7%), and Ball
(4%). Competitors find it hard to differentiate because customers buy it based on price. => High
3. How well did CC&S do under John Connelly? What are the secret formulas for success? When he arrived at Crown, it headed into bankruptcy. However, after 4 years, in
1961, it achieved a 1646% increase in profits on a relatively insignificant sales increase. Connelly sought to develop a product line built around Crown's traditional strengths in metal forming and fabrication. He chose to emphasize the areas Crown knew best-tin-plated cans and crowns-and to concentrate on specialized uses and international markets. And it concentrated on providing products for a number of customers near their plants and in international market, crown invested heavily in developing nations. Also he emphasized quality, flexibility and quick response to customer needs. So the plants were small and were located close to the customer rather than the raw material source. In 1970, crown formed Nationalwide Recycle,
Inc. as a wholly-owned subsidiary. In terms of R&D, it focused on enhancing the existing product line. It did not spend a great deal of money for basic research. Also crown worked closely with large breweries in the development of the two-piece drawn-and-ironed cans for the beverage industry.