The Leadership Change of Crown

Cork & Seal in 1989

Problem
John F. Connelly, highly successful CEO of Crown Cork & Seal since 1957,
stepped down in 1989 and named William J. Avery the new chief executive
officer of the company. Avery, taking charge in his newly acquired position,
faced an opportunity of the full or partial acquisition of Continental Can in
addition to indecision for what direction to take his company as new CEO,
with industry trends creating both opportunities and threats for future
company growth in the metal container industry.

Situation Analysis
Context
Economic Trends
Industry wide low profit margins
Industry wide excess production capacity
Rising material and labor costs in the industry
Industry diversification in types of containers for production
Mergers and acquisitions leading to a more consolidated industry
The consolidation of soft drink bottlers
In-house manufacturing by brewers
High transportation costs make international trade uneconomical
Slowing growth of metal containers industry
Technological Trends
Move from 3 piece can lines to 2 piece can lines in the production
process
Selling 3 piece can lines, moving 3 piece can lines to international
locations
Emergence of plastic and glass as substitutes to aluminum
Newly designed equipment to specifically meet needs of soft-drink
producers
Aluminum recycling
Two-piece drawn-and-ironed cans for the beverage industry
Customer driven manufacturing

Social/Cultural
Environmentalism, slowing growth of plastics industry and encouraging
recycling
Developing nations acceptance of cans as packaged goods takes time

Customers
There are a number of large users in the metal container industry, comprised mostly
of soft drink companies and brewers: Coca-Cola Company, Anheuser-Busch,
Seagram Company, Coca-Cola Enterprises, Phillip Morris, the Molsom Companies,
John Labatt, The Stroh Brewery Company, and Adolf Coors.

Company
Crown Cork & Seal is the 4th largest company in the metal container industry,
producing metal cans, crowns, and closures to hold and/or seal consumer and
industrial goods. In 1989 they had the largest number of 2 piece can lines in the
industry for production. Some of their most notable successes came from the
former CEO who decentralized manufacturing facilities and increased the number of
manufacturing facilities to decrease transportation costs and change the companys
strategic focus to providing quality, fexibility, and quick response to customer
needs and demands.

-Large company with 4th market share

position
- Highest number of 2 peice can lines in
industry
-Quality, fexibility and quick response
to customer needs and demands
-Success in customer driven R&D
strategy

-Lack of differentiation: Competing

with companies selling an identical
product
-Declining profit margin and operating
margins
-In transition after CEO change
-High transportation costs
-Excess production capactiy
-High material and labor costs

S.W.O.T.
Analysis

Threats:

-Partial or full aquisition of Continental

Can
-Plastic closures and containers
-Glass containers
-Emergence of soft-drink indsutry and
their use of aluminum cans for
packaging

-Glass substitutes
Plastic substitues
-In-house manufacture
-Consolidating indsutry
-Rival purchase of Continental Can

Strengths:
Opportunities:

Weaknesses:

Collaborators
Due to the need for quality supplier relationships, aluminum suppliers such as Alcan
and ALCOA represent collaborators for Crown Cork & Seal. Reynolds, for example,

utilizes themselves as an aluminum supplier, making the need for companies like
Crown to work more closely with suppliers to properly compete with the partially,
vertically integrated Reynolds. Additionally, key customers may also be considered
collaborators with customer driven manufacturing for customized cans and
containers. Good relationships both upstream and downstream allow for better
management of the supply chain and better information for new products and
changes to products.

Competitors
Competitors include major rivals in the metal container industry, providing identical
products, as well as regional competitors. Additionally, the substitute use of plastic
and glass containers instead of metal containers provide further competition for
Crown Cork & Seal in the metal container industry.

New Entrants
-High, due to multiple supplier
relationships

-Low, due to barriers of entry including

Industry Rivalry
set-up costs and establishing

High, with 4 major distribution networks

competitors
Amercan National Can: 25%
Market Share
Continetal Can: 18% Market
Share
Reynolds Metals: 7% Market
Share
Ball Corporation: 4% Market
Share
Regional Competiors: Van
Dorn and Heekin Can

Customer Bargaining Power

-High, due to emergence and increasing

popularity of plastics and glass
containers

Substitute Products

Supplier Bargaining Power

-Low, due to multiple supplier
relationships

Alternatives
Status Quo
Make no changes despite changes in industry trends, ignoring threats and not
taking advantage of opportunities. This strategy option would include not bidding
on the partial or full acquisition of Continental Can, and also keep the companies

focus on core competencies in production of the metal can, instead of delving into
alternative container production using plastic or glass. This option has the strength
of focusing on what the company has done well and has a minimal amount of risk,
outside of the risk of forgoing the other strategy options. For example, there is risk
in forgoing bidding on Continental Can because a rival company might take
advantage of the opportunity, and there is risk in not entering into the plastic or
glass container industry because it leaves the opportunity for other competitors
with substitute products and new entrants with substitute products.

Reactive
This strategy would respond to industry trends with minimal changes, as to avoid
too risky of an expansion move. Partial acquisition of Continental Can would be a
part of this alternative, as well as a new focus on R&D and customer needs and
demands as the containers industry changes and substitute container products
become more wide-spread. This strategy would look at expanding the available
products from just metal containers to also plastic or glass containers. The overall
risk of this strategy would be significantly more than the status quo strategy, but
would also be significantly less risky than the proactive strategy which would
include more expansion of products and the company. It is likely this alternative
would increase market share, but not likely that this alternative would allow Crown
Cork & Seal to become the market leader.

Proactive
A proactive strategy would involve a full acquisition of Continental Can as well as a
significant new focus on R&D to include new products of both plastic and glass
containers to continue to provide quality, fexibility, and quick response to customer
needs and demands. This alternative would be very risky, especially considering
the new trends of in-house manufacturing by brewers and soft drink companies.
Also, mergers in the industry had not worked well in the past, and there is a huge
challenge in combining two different companies with completely different cultures;
however, this option also would be a very aggressive approach to increase market
share and potentially become the largest supplier in the metal container industry,
as well as a significant supplier of substitute containers made of glass and plastic.
Further, this alternative responds to changes in the competitive environment that
are threatening, stealing the opportunity rivals have to acquire Continental Can and
not allowing new entrants or companies providing substitute products to steal a
significant market share from Crown, ideally leaving Crown as the market leader.

Recommendation
Proactive
The proactive strategy approach would be in the best interest of the new CEO for
Crown Cork & Seal because it advantageously responds to opportunities and threats

 Use excess production capacity on manufuturing of new products

Continue to concentrate on specialized uses and international markets
(Connelly's Strategy)

Focus on R&D of new products in glass and plastic, fully utlizing

downstream and upsteam collaborators and continuing a customer
driven R&D strategy as Connelly exampled

Full acquisition of Contential Can

7% market share for Crown Cork & Seal and 18% for Contential
Can=25% market share=leading market share in the industry

Phase
3
Phase
2
Phase
1

Proactive

Implementation
in the external environment, while taking full advantage of the companys strengths
and responding to the companys weaknesses. The proactive option is risky, and
the most risky of the alternatives, but the rewards of expansion moves would be the
most beneficial for long-term company growth and strength, both domestically and
internationally.