Crown Cork & Seal

Product line: metal cans, \specialized uses" Markets: Domestic and International (LDCs) Sales and Marketing: Responsive, Technical assistance, Problem-solving Manufacturing: Focus on 2-piece market, high quality-control, inventories, innovative (2 printers, conversion printer), strengths in metal forming and fabrication. Organization: Lean, centralized cost control, decentralized responsibility of quality, customer service. R&D: No basic research, but quick to roll out others' innovations. Finance: sold inventory to get out of debt, eliminated preferred dividends Competitive advantages: Lean, low cost, Manufacturing specialisations - faster than others to respond to customer needs (Differentiation and flexibility), International markets 44% of sales; 54% of operating profits

Metal Can Industry Market: 12.2 billion market with 8% growth rate in US Huge untapped developing markets with high potential (62 plants generating 44% of sales &54% of operating profits Limited no. of major players

Crown Cork Financials Healthy & consistent ROE of 14% Low /consistent ROS of 4-5% O p e r a t i n g r a t i o o f 8 - 9 % c o n s i s t e n t l y , h o w e v e r h i g h operating ratios of 15-18% from the rest of the world markets Low SGA per sale of 3% vis--vis 5-8% in the industry (American can company around 15%) Very low debt to equity ratio Consistent cost of goods per sale of 85% International operating ratios is consistently improving from 14% to 18% (1986 to 1988)

Policies that Connelly Undertook Pare down the organization Instituted the concept of accountability Restructured the manufacturing lines E m p h a s i z e d c o s t e f f i c i e n c y , q u a l i t y a n d c u s t o m e r s e r v i c e a s essential ingredients He made the employees as owner operators and created trust and support to the employee. Emphasized on tin plated cans & crowns Expansion to international markets with heavy investment abroad Expand national distribution Locating the plants close to customer Serving multiple customers 24 hours operation of the plant with 12hours shift No focus on fundamental R & D Stressed on continual improvement Strong customer connect Very low debt equity ratio High ROE & low SGA expense Capturing developing markets in the very initial stages Entry in profitable Aluminium recycling industry.

Crowns 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 to reduce focus on beverage and aerosol; Diversify into other packaging materials or product categories; Diversify into other lessrelated businesses; Exit or sell the business.

Major Acquisitions: 1990: Continental Can Canada for $330M (now 2nd in Canada) Continental U.S. food and beverage metal container lines for $336M (now 2nd in U.S.) 1991: Continental Can International for $125M Ball's General Packaging business Citrus Central, can maker for citrus fruit industry and Small acquisitions of engineering services and machining companies

1992: CONSTAR International, world's largest manufacturer of plastic containers 1993: Van Dorn Renamed Crown Holdings, Inc. 1997: Golden Aluminum Company (producer of aluminum) International Expansion: 1993 Builds beverage can and plastic cap production lines in UAE, Jordan, Argentina, and Shanghai 1994 Expansion into Vietnam via JV with two local companies, plans to produce 400M cans per year 1994 Announces Beijing JV, its 3rd in China Management: 1989 William Avery compensation exceeds $2M, putting him in the top quintile of Fortune 500 CEOs

 Continuing restructuring: more than two dozen plants closed between 1991 and 1995 1992 Firm re-organized around 4 divisions: North America, International, Machinery, and Plastics; 2000 William Avery steps down Just who/what should be considered in the Competitive / Task Environment? Crown could be considered to be in the packaging, container, metal container, beverage and aerosol can industries glass, plastics, paper, cardboard, composite manufacturers along with all the players in the case could be possible competitors. Best to start with the main segment Crown serves, the metal container industry. Buyers Many of the buyers are large, powerful companies Coke, Pepsi, Campbells, Kraft, General Foods Cans are bought in large volumes almost a commodity Buyers demand & receive JIT resupply Buyers punish poor quality by cutting order size Some buyers show credible threat of backwards integration into container making, knowledge diffusion (both technical and commercial) Can = about 45% of cost of soda, all savings in can costs go straight to profit Buyer industries tend to be competitive Substitutes Many substitutes for metal containers Glass, plastic, paper, fiberfoil, paperandplastic combinations Action of substitutes is to limit demand for metal containers Growth of substitutes from 9% to 18% through the 80s Suppliers The major aluminium (71% of sales to the industry) and integrated steel (29% of sales to the industry) companies Aluminum is classic oligopoly (nearing duopoly) dominated by Alcan & Alcoa Some limitations on this oligopolys power slowing growth, substitutes, exit barriers for marginal players Reynolds may benefit from R&D synergies Pricing is used by steel to defend their market share but its clear this is a declining market for steel (are they harvesting cash?) New Entry More than 100 mostly regional firms entered the industry Transportation costs limit geographical territories to ~300 miles Capital costs for 3piece can product lines are relatively low ($7 million 1989 dollars)

 Capital costs for a 2piece can line ~$25 million Major reason for recent lack of entry isnt capital costs or technology its because of the trend in industry margins. So, when it comes to rivalry, This is basically a lowgrowth, 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).

Industry Includes: Steel cans, aluminum cans, - aluminum cans, two-piece cans and three-piece cans, Excludes: plastic, glass and other things

New CEO, John Conway, evokes strategy of Connelly difficult to return to bare-bones corporate culture of the past 2003 SGA/Sales 5.1% Divested Constar International (plastics) Nov 2002 Focus on repairing balance sheet & paying down debt Consolidation in the metal can industry Post 2001, looks like a 3-firm oligopoly, with each firm selectively taking out capacity

Strategic Leadership As CEO Connelly had vision, developed strategy, created a culture to reinforce this strategy he led by example through hard work and frugality, setting demanding goals, continually stretching the organization made sure policies were consistent with an overall low cost, focused strategy: Crown had outstanding financial performance by focusing on the beverage & aerosol highgrowth segments;

 Committed to customer service, justin time delivery; expanded product to include canning machine design, build, and 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.