Crown Cork & Seal in 1989
As many successful companies do, Crown Cork & Seal began with an idea—one that had the potential to improve the world in which we live. In 1891, a machine shop foreman conceptualized a superior method for creating bottle caps, and set about to do so. Crown Cork & Seal was born, and what followed were intermittent periods of triumphant achievements and costly missteps, soaring profits and depressing losses, eventuating in a successful company with rich tradition and history. However, the competitive business environment slows for no one, and the company finds itself constantly reevaluating its strengths, its competitive advantages, and the viability ...view middle of the document...
When viewing the industry through the lens of the buyers, the main consideration is the price, since the products are definitely undifferentiated and offer low switching costs. The idea for companies in the metal container industry is therefore to reduce shipping and managing costs. In this quest to always obtain lower costs, some buyers even started to produce their own metal cans (major beer producers making 55% of their necessary cans). Therefore, the power of buyers is relatively high, which weakens the producers’ power in this industry.
On the supply side, various factors exert influence over the power of suppliers, leaving it relatively benign. The superior quality and recyclability of aluminum compared to steel leads to a higher demand for aluminum; however, the price is still the main constraint, and aluminum costs have to be limited to prevent steel from increasing its market share (which explains Alcoa‘s decision to limit prices). Some producers are also suppliers of raw materials (Reynolds Metals) and benefit from advantages that other companies don’t have access to (Crown, for instance). The cost of aluminum also tends to grow (even with the limitations in order to compete with steel), but on the other side, the overall capacity of production has really increased from 1987 to 1989 (7%), offering more latitude to the producers.
The threat of substitutes in the industry is a powerful force, especially domestically. As plastic gains traction and technologies advance (possibly increasing the ability to preserve carbonation in plastic containers), this pressure is only likely to increase. The existence of many substitute products (glass, steel, plastic, etc.) is another constraint on prices, especially given the high percentage of production costs per can due to raw material (around 65%).
Finally, due to the importance of keeping prices low, the industry is run by fierce price-based competition to maintain market share; the main companies in the industry also utilize volume discounts to provide more attractive offers. But once again, the fierce competition based on prices reduces the attractiveness of the industry, where margins tend to be tightened.
Despite important barriers to entry that protect current producers, the industry is not very attractive mainly because of its saturation that offers very few opportunities and its price-based competition that lowers the margins. Rivalry is fierce over prices, and customers benefit from a real power over the producers.
Most great organizations can trace a portion of their success to a visionary, a leader, or a champion of some sort. For Crown Cork & Seal, that leader was John Connelly. Connelly took over the presidency of the company in 1957, while the company was on the brink of bankruptcy. His overall strategy focused on controlling costs while prioritizing quality and service. Connelly reduced staff, discarded the divisional accounting departments...