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Professor Stephen P. Bradley and Research Associate Sheila M. Cavanaugh prepared this case. HBS cases are developed solely as the basis for
class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective
management

Copyright © 1993, 2011 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-
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S T E P H E N P . B R A D L E Y

Crown Cork & Seal in 198

John F. Connelly, Crown Cork & Seal’s ailing octogenarian chairman, stepped down and
appointed his long-time disciple, William J. Avery, chief executive officer of the Philadelphia can
manufacturer in May 1989. Avery had been president of Crown Cork & Seal since 1981, but had
spent the duration of his career in Connelly’s shadow. As Crown’s new CEO, Avery planned to
review Connelly’s long-followed strategy in light of the changing industry outlook.

The metal container industry had changed considerably since Connelly took over Crown’s reins in
1957. American National had just been acquired by France’s state-owned Pechiney International,
making it the world’s largest beverage can producer. Continental Can, another long-standing rival,
was now owned by Peter Kiewit Sons, a privately held construction firm. In 1989, all, or part of
Continental’s can-making operations, appeared to be for sale. Reynolds Metals, a traditional supplier
of aluminum to can makers, was now also a formidable competitor in cans. The moves by both
suppliers and customers of can makers to integrate into can manufacturing themselves had
profoundly redefined the metal can industry since John Connelly’s arrival.

Reflecting on these dramatic changes, Avery wondered whether Crown, with $1.8 billion in sales,
should consider bidding for all or part of Continental Can. Avery also wondered whether Crown
should break with tradition and expand its product line beyond the manufacture of metal cans and
closures. For 30 years Crown had stuck to its core business, metal can making, but analysts saw little
growth potential for metal cans in the 1990s. Industry observers forecast plastics as the growth
segment for containers. As Avery mulled over his options, he asked: Was it finally time for a change?

The Metal Container Industry

The metal container industry, representing 61% of all packaged products in the United States in
1989, produced metal cans, crowns (bottle caps), and closures (screw caps, bottle lids) to hold or seal
an almost endless variety of consumer and industrial goods. Glass and plastic containers split the
balance of the container market with shares of 21% and 18%, respectively. Metal cans served the
beverage, food, and general packaging industries.

Metal cans were made of aluminum, steel, or a combination of both. Three-piece cans were
formed by rolling a sheet of metal, soldering it, cutting it to size, and attaching two ends, thereby

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Jul 2020.

793-035 Crown Cork & Seal in 1989

creating a three-piece, seamed can. Steel was the primary raw material of three-piece cans, which
were most popular in the food and general packaging industries. Two-piece cans, developed in the
1960s, were formed by pushing a flat blank of metal into a deep cup, eliminating a separate bottom, a
molding process termed “drawn and ironed.” While aluminum companies developed the original
technology for the two-piece can, steel companies ultimately followed suit with a thin-walled steel
version. By 1983, two-piece cans dominated the beverage industry where they were the can of choice
for beer and soft drink makers. Of the 120 billion cans produced in 1989, 80% were two-piece cans.

Throughout the decade of the 1980s, the number of metal cans shipped grew by an annual
average of 3.7%. Aluminum can growth averaged 8% annually, while steel can shipments fell by an
average of 3.1% per year. The number of aluminum cans produced increased by almost 200% during
the period 1980–1989, reaching a high of 85 billion, while steel can production dropped by 22% to 3

billion for the same period (see Exhibit 1).

Industry Structure

Five firms dominated the $12.2 billion U.S. metal can industry in 1989, with an aggregate 61%
market share. The country’s largest manufacturer—American National Can—held a 25% market
share. The four firms trailing American National in sales were Continental Can (18% market share),
Reynolds Metals (7%), Crown Cork & Seal (7%), and Ball Corporation (4%). Approximately 100 firm

served the balance of the market.

Pricing Pricing in the can industry was very competitive. To lower costs, managers sought
long runs of standard items, which increased capacity utilization and reduced the need for costly
changeovers. As a result, most companies offered volume discounts to encourage large orders.
Despite persistent metal can demand, industry operating margins fell approximately 7% to roughly
4% between 1986 and 1989. Industry analysts attributed the drop in operating margins to (1) a 15%
increase in aluminum can sheet prices at a time when most can makers had guaranteed volume
prices that did not incorporate substantial cost increases; (2) a 7% increase in beverage can production
capacity between 1987 and 1989; (3) an increasing number of the nation’s major brewers producing
containers in house; and (4) the consolidation of soft drink bottlers throughout the decade. Forced to
economize following costly battles for market share, soft drink bottlers used their leverage to obtain
packaging price discounts.1 Over capacity and a shrinking customer base contributed to an
unprecedented squeeze on manufacturers’ margins, and the can manufacturers themselves
contributed to the margin deterioration by aggressively discounting to protect market share. As one
manufacturer confessed, “When you look at the beverage can industry, it’s no secret that we are
selling at a lower price today than we were 10 years ago.”

Customers Among the industry’s largest users were the Coca-Cola Company, Anheuser-Busch
Companies, Inc., Pepsico Inc., and Coca-Cola Enterprises Inc. (see Exhibit 2). Consolidation within
the soft drink segment of the bottling industry reduced the number of bottlers from approximately
8,000 in 1980 to about 800 in 1989 and placed a significant amount of beverage volume in the hands of
a few large companies.2 Since the can constituted about 45% of the total cost of a packaged beverage,
soft drink bottlers and brewers usually maintained relationships with more than one can supplier.
Poor service and uncompetitive prices could be punished by cuts in order size.

1Salomon Brothers, Beverage Cans Industry Report, March 1, 1990.

2T. Davis, “Can Do: A Metal Container Update,” Beverage World (June 1990): 34.

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Jul 2020.

Crown Cork & Seal in 1989 793-035

Distribution Due to the bulky nature of cans, manufacturers located their plants close to
customers to minimize transportation costs. The primary cost components of the metal can include
(1) raw materials at 65%; (2) direct labor at 12%; and (3) transportation at roughly 7.5%. Various
estimates placed the radius of economical distribution for a plant at between 150 and 300 miles.
Beverage can producers preferred aluminum to steel because of aluminum’s lighter weight and lower
shipping costs. In 1988, steel cans weighed more than twice as much as aluminum.3 The costs
incurred in transporting cans to overseas markets made international trade uneconomical. Foreign
markets were served by joint ventures, foreign subsidiaries, affiliates of U.S. can manufacturers, and
local overseas firms.

Manufacturing Two-piece can lines cost approximately $16 million, and the investment in
peripheral equipment raised the per-line cost to $20–$25 million. The minimum efficient plant size
was one line and installations ranged from one to five lines. While two-piece can lines achieved
quick and persistent popularity, they did not completely replace their antecedents—the three-piece
can lines. The food and general packaging segment—representing 28% of the metal container
industry in 1989—continued using three-piece cans throughout the 1980s. The beverage segment,
however, had made a complete switch from three-piece to two-piece cans by 1983.

A typical three-piece can production line cost between $1.5 and $2 million and required expensive
seaming, end-making, and finishing equipment. Since each finishing line could handle the output of
three or four can-forming lines, the minimum efficient plant required at least $7 million in basic
equipment. Most plants had 12 to 15 lines for the increased flexibility of handling more than one type
of can at once. However, any more than 15 lines became unwieldy because of the need for
duplication of set-up crews, maintenance, and supervision. The beverage industry’s switch from
three- to two-piece lines prompted many manufacturers to sell complete, fully operational three-piece
lines “as is” for $175,000 to $200,000. Some firms shipped their old lines overseas to their foreign
operations where growth potential was great, there were few entrenched firms, and canning
technology was not well understood.

Suppliers Since the invention of the aluminum can in 1958, steel had fought a losing battle
against aluminum. In 1970, steel accounted for 88% of metal cans, but by 1989 had dropped to 29%.
In addition to being lighter, of higher, more consistent quality, and more economical to recycle,
aluminum was also friendlier to the taste and offered superior lithography qualities. By 1989,
aluminum accounted for 99% of the beer and 94% of the soft drink metal container businesses,
respectively.

The country’s three largest aluminum producers supplied the metal can industry. Alcoa, the
world’s largest aluminum producer with 1988 sales of $9.8 billion, and Alcan, the world’s largest
marketer of primary aluminum, with 1988 sales of $8.5 billion, supplied over 65% of the domestic can
sheet requirements. Reynolds Metals, the second-largest aluminum producer in the United States,
with 1988 sales of $5.6 billion, supplied aluminum sheet to the industry and also produced about

billion cans itself.4 Reynolds Metals was the only aluminum company in the United States that
produced cans (see Exhibit 3).

3J.J. Sheehan, “Nothing Succeeds Like Success,” Beverage World (November 1988): 82.

4Until 1985, aluminum cans were restricted to carbonated beverages because it was the carbonation that prevented the can
from collapsing. Reynolds discovered that by adding liquid nitrogen to the can’s contents, aluminum containers could hold
noncarbonated beverages and still retain their shape. The liquid nitrogen made it possible for Reynolds to make cans for
liquor, chocolate drinks, and fruit juices.

793-035 Crown Cork & Seal in 1989

Steel’s consistent advantage over aluminum was price. According to The American Iron and Steel
Institute in 1988, steel represented a savings of from $5 to $7 for every thousand cans produced, or an
estimated savings of $500 million a year for can manufacturers. In 1988, aluminum prices increased
an estimated 15%, while the lower steel prices increased by only 5% to 7%. According to a
representative of Alcoa, the decision on behalf of the firm to limit aluminum price increases was
attributed to the threat of possible inroads by steel.5

Industry Trends

The major trends characterizing the metal container industry during the 1980s included (1) the
continuing threat of in-house manufacture; (2) the emergence of plastics as a viable packaging
material; (3) steady competition from glass as a substitute for aluminum in the beer market; (4) the
emergence of the soft drink industry as the largest end-user of packaging, with aluminum as the
primary beneficiary; and (5) the diversification of, and consolidation among, packaging producers.

In-house manufacture Production of cans at “captive” plants—those producing cans for their
own company use—accounted for approximately 25% of the total can output in 1989. Much of the
expansion in in-house manufactured cans, which persisted throughout the 1980s, occurred at plants
owned by the nation’s major food producers and brewers. Many large brewers moved to hold can
costs down by developing their own manufacturing capability. Brewers found it advantageous to
invest in captive manufacture because of high-volume, single-label production runs. Adolph Coors
took this to the extreme by producing all their cans in-house and supplying almost all of their own
aluminum requirements from their 130 million-pound sheet rolling mill in San Antonio, Texas.6 By
the end of the 1980s, the beer industry had the capacity to supply about 55% of its beverage can
needs.

Captive manufacturing was not widespread in the soft drink industry, where many small bottlers
and franchise operations were generally more dispersed geographically compared with the brewing
industry. Soft drink bottlers were also geared to low-volume, multilabel output, which was not as
economically suitable for the in-house can manufacturing process.

Plastics Throughout the 1980s, plastics was the growth leader in the container industry with its
share growing from 9% in 1980 to 18% in 1989. Plastic bottle sales in the United States were
estimated to reach $3.5 billion in 1989, with food and beverage—buoyed by soft drinks sales—
accounting for 50% of the total. Plastic bottles accounted for 11% of domestic soft drink sales, with
most of its penetration coming at the expense of glass. Plastic’s light weight and convenient handling
contributed to widespread consumer acceptance. The greatest challenge facing plastics, however,
was the need to produce a material that simultaneously retained carbonation and prevented
infiltration of oxygen. The plastic bottle often allowed carbonation to escape in less than 4 months,
while aluminum cans held carbonation for more than 16 months. Anheuser-Busch claimed that U.S.
brewers expected beer containers to have at least a 90-day shelf-life, a requirement that had not been
met by any plastic can or bottle.8 Additionally, standard production lines that filled 2,400 beer cans
per minute required containers with perfectly flat bottoms, a feature difficult to achieve using

5L. Sly, “A `Can-Do Crusade’ By Steel Industry,” The Chicago Tribune (July 3, 1988): 1.

6Merrill Lynch Capital Markets Containers and Packaging Industry Report, March 21, 1991.

7Salomon Brothers Inc. Containers/Packaging: Beverage Cans Industry Report, April 3, 1991.

8A. Agoos, “Aluminum Girds For The Plastic Can Bid,” Chemical Week (January 16, 1985): 18.

Crown Cork & Seal in 1989 793-035
5

plastic.9 Since 1987, the growth of plastics slowed somewhat apparently due to the impact on the
environment of plastic packaging. Unlike glass and aluminum, plastics recycling was not a “closed
loop” system.

There were many small players producing plastic containers in 1988, often specializing by end-use
or geographic region. However, only seven companies had sales of over $100 million. Owens-
Illinois, the largest producer of plastic containers, specialized in custom-made bottles and closures for
food, health and beauty, and pharmaceutical products. It was the leading supplier of prescription
containers, sold primarily to drug wholesalers, major drug chains, and the government. Constar, the
second-largest domestic producer of plastic containers, acquired its plastic bottle operation from
Owens-Illinois, and relied on plastic soft drink bottles for about two-thirds of its sales. Johnson
Controls produced bottles for the soft drink industry from 17 U.S. plants and six non-U.S. plants, and
was the largest producer of plastic bottles for water and liquor. American National and Continental
Can both produced plastic bottles for food, beverages, and other products such as tennis balls (see
Exhibit 4 for information on competitors).

Glass Glass bottles accounted for only 14% of domestic soft drink sales, trailing metal cans at
75%. The cost advantage that glass once had relative to plastic in the popular 16-ounce bottle size
disappeared by the mid-1980s because of consistently declining resin prices. Moreover, soft drink
bottlers preferred the metal can to glass because of a variety of logistical and economic benefits: faster
filling speeds, lighter weight, compactness for inventory, and transportation efficiency. In 1989, the
delivered cost (including closure and label) of a 12-ounce can (the most popular size) was about 15%
less than that of glass or plastic 16-ounce bottles (the most popular size).11 The area in which glass
continued to outperform metal, however, was the beer category where consumers seemed to have a
love affair with the “long neck” bottle that would work to its advantage in the coming years.

Soft drinks and aluminum cans Throughout the 1980s, the soft drink industry emerged as
the largest end-user of packaging. In 1989, soft drinks captured more than 50% of the total beverage
market. The soft drink industry accounted for 42% of metal cans shipped in 1989—up from 29% in
1980. The major beneficiary of this trend was the aluminum can. In addition to the industry’s
continued commitment to advanced technology and innovation, aluminum’s penetration could be
traced to several factors: (1) aluminum’s weight advantage over glass and steel; (2) aluminum’s ease
of handling; (3) a wider variety of graphics options provided by multipack can containers; and (4)
consumer preference.13 Aluminum’s growth was also supported by the vending machine market,
which was built around cans and dispensed approximately 20% of all soft drinks in 1989. An
estimated 60% of Coca Cola’s and 50% of Pepsi’s beverages were packaged in metal cans. Coca Cola
Enterprises and Pepsi Cola Bottling Group together accounted for 22% of all soft drink cans shipped

9B. Oman, “A Clear Choice?” Beverage World (June 1990): 78.

10In response to public concern, the container industry developed highly efficient “closed loop” recycling systems. Containers
flowed from the manufacturer, through the wholesaler/distributor, to the retailer, to the consumer, and back to the
manufacturer or material supplier for recycling. Aluminum’s high recycling value permitted can manufacturers to sell cans at
a lower cost to beverage producers. The reclamation of steel cans lagged that of aluminum because collection and recycling
did not result in significant energy or material cost advantages.

11N. Lang, “A Touch of Glass,” Beverage World (June 1990): 36.

12Lang, “A Touch of Glass.”

13U.S. Industrial Outlook, 1984-1990.

793-035 Crown Cork & Seal in 1989

in 1989.14 In 1980, the industry shipped 15.9 billion aluminum soft drink cans. By 1989, that figure
had increased to 49.2 billion cans. This increase, representing a 12% average annual growth rate, was
achieved during a decade that experienced a 3.6% average annual increase in total gallons of soft
drinks consumed.

Diversification and consolidation Low profit margins, excess capacity, and rising material
and labor costs prompted a number of corporate diversifications and subsequent consolidations
throughout the 1970s and 1980s. While many can manufacturers diversified across the spectrum of
rigid containers to supply all major end-use markets (food, beverages, and general packaging), others
diversified into nonpackaging businesses such as energy (oil and gas) and financial services.

Over a 20-year period, for example, American Can reduced its dependence on domestic can
manufacturing, moving into totally unrelated fields, such as insurance. Between 1981 and 1986 the
company invested $940 million to acquire all or part of six insurance companies. Ultimately, the
packaging businesses of American Can were acquired by Triangle Industries in 1986, with the
financial services businesses re-emerged as Primerica. Similarly, Continental Can broadly diversified
its holdings, changing its name to Continental Group in 1976 when can sales dropped to 38% of total
sales. In the 1980s, Continental Group invested heavily in energy exploration, research and
transportation, but profits were weak and they were ultimately taken over by Peter Kiewit Sons in
1984.

While National Can stuck broadly to containers, it diversified through acquisition into glass
containers, food canning, pet foods, bottle closures, and plastic containers. However, instead of
generating future growth opportunities, the expansion into food products proved a drag on company
earnings.

Under the leadership of John W. Fisher, Ball Corporation, a leading glass bottle and can maker,
expanded into the high-technology market and by 1987 had procured $180 million in defense
contracts. Fisher directed Ball into such fields as petroleum engineering equipment, photo-engraving
and plastics, and established the company as a leading manufacturer of computer components.

Major Competitors in 1989

For over 30 years, three of the current five top competitors in can manufacturing dominated the
metal can industry. Since the early 1950s, American Can, Continental Can, Crown Cork & Seal, and
National Can held the top four rankings in can manufacturing. A series of dramatic mergers and
acquisitions among several of the country’s leading manufacturers throughout the 1980s served to
shift as well as consolidate power at the top. Management at fourth-ranked Crown Cork & Seal
viewed the following four firms as constituting its primary competition in 1989: American National
Can, Continental Can, Reynolds Metals, and Ball Corporation. Two smaller companies—Van Dorn
Company and Heekin Can—were strong competitors regionally (see Exhibit 5).

American National Can Representing the merger of two former, long-established
competitors, American National—a wholly-owned subsidiary of the Pechiney International Group—
generated sales revenues of $4.4 billion in 1988. In 1985, Triangle Industries, a New Jersey-based
maker of video games, vending machines and jukeboxes, bought National Can for $421 million. In
1986, Triangle bought the U.S. packaging businesses of American Can for $550 million. In 1988,
Triangle sold American National Can (ANC) to Pechiney, S.A., the French state-owned industrial

14The First Boston Corporation, Packaging Industry Report, April 4, 1990.

Crown Cork & Seal in 1989 793-035
7

concern, for $3.5 billion. Pechiney was the world’s third-largest producer of aluminum and, through
its Cebal Group, a major European manufacturer of packaging. A member of the Pechiney
International Group, ANC was the largest beverage can maker in the world—producing more than
30 billion cans annually. With more than 100 facilities in 12 countries, ANC’s product line of
aluminum and steel cans, glass containers and caps and closures, served the major beverage, food,
pharmaceuticals, and cosmetics markets.

Continental Can Continental Can had long been a financially stable container company; its
revenues increased every year without interruption from 1923 through the mid-1980s. By the 1970s,
Continental had surpassed American Can as the largest container company in the United States. The
year 1984, however, represented a turning point in Continental’s history when the company became
an attractive takeover target. Peter Kiewit Sons Inc., a private construction firm in Omaha, Nebraska,
purchased Continental Group for $2.75 billion in 1984. Under the direction of Vice Chairman Donald
Strum, Kiewit dismantled Continental Group in an effort to make the operation more profitable.
Within a year, Strum had sold $1.6 billion worth of insurance, gas pipelines and oil and gas reserves.
Staff at Continental’s Connecticut headquarters was reduced from 500 to 40. Continental Can
generated sales revenues of $3.3 billion in 1988, ranking it second behind American National. By the
late 1980s, management at Kiewit considered divesting—in whole or in part—Continental Can’s
packaging operations, which included Continental Can USA, Europe, and Canada, as well as metal
packaging operations in Latin America, Asia, and the Middle East.

Reynolds Metals Based in Richmond, Virginia, Reynolds Metals was the only domestic
company integrated from aluminum ingot through aluminum cans. With 1988 sales revenues of $5.6
billion and net income of $482 million, Reynolds served the following principal markets: packaging
and containers; distributors and fabricators; building and construction; aircraft and automotive; and
electrical. Reynolds’ packaging and container revenue amounted to $2.4 billion in 1988. As one of
the industry’s leading can makers, Reynolds was instrumental in establishing new uses for the
aluminum can and was a world leader in can-making technology. Reynolds’ developments included
high-speed can-forming machinery with capabilities in excess of 400 cans per minute, faster
inspection equipment (operating at speeds of up to 2,000 cans per minute), and spun aluminum tops
which contained less material. The company’s next generation of can end-making technology was
scheduled for installation in the early 1990s.

Ball Corporation Founded in 1880 in Muncie, Indiana, Ball Corporation generated operating
income of $113 million on sales revenues of $1 billion in 1988. Considered one of the industry’s low-
cost producers, Ball was the fifth-largest manufacturer of metal containers as well as the third-largest
glass container manufacturer in the United States. Ball’s packaging businesses accounted for 82.5% of
total sales and 77.6% of consolidated operating earnings in 1988. Ball’s can-making technology and
manufacturing flexibility allowed the company to make shorter runs in the production of customized,
higher-margin products designed to meet customers’ specifications and needs. In 1988, beverage can
sales accounted for 62% of total sales. Anheuser-Busch, Ball’s largest customer, accounted for 14% of
sales that year. In 1989, Ball was rumored to be planning to purchase the balance of its 50%-owned
joint venture, Ball Packaging Products Canada, Inc. The acquisition would make Ball the number
two producer of metal beverage and food containers in the Canadian market.

Van Dorn Company The industry’s next two largest competitors, with a combined market
share of 3%, were Van Dorn Company and Heekin Can, Inc. Founded in 1872 in Cleveland, Ohio,
Van Dorn manufactured two product lines: containers and plastic injection molding equipment. Van
Dorn was one of the world’s largest producers of drawn aluminum containers for processed foods,
and a major manufacturer of metal, plastic and composite containers for the paint, petroleum,

793-035 Crown Cork & Seal in 1989

chemical, automotive, food, and pharmaceutical industries. Van Dorn was also a leading
manufacturer of injection molding equipment for the plastics industry. The company’s Davies Can
Division, founded in 1922, was a regional manufacturer of metal and plastic containers. In 1988,
Davies planned to build two new can manufacturing plants at a cost of about $20 million each. These
facilities would each produce about 40 million cans annually. Van Dorn’s consolidated can sales of
$334 million in 1988 ranked it sixth overall among the country’s leading can manufacturers.

Heekin Can James Heekin, a Cincinnati coffee merchant, founded Heekin Can in 1901 as a
way to package his own products. The company experienced rapid growth and soon contained one
of the country’s largest metal lithography plants under one roof. Three generations of the Heekin
family built Heekin into a strong regional force in the packaging industry. The family sold the
business to Diamond International Corporation, a large, diversified publicly held company, in 1965.
Diamond operated Heekin as a subsidiary until 1982 when it was sold to its operating management
and a group of private investors. Heekin went public in 1985. With 1988 sales revenues of $275.8
million, seventh-ranked Heekin primarily manufactured steel cans for processors, packagers, and
distributors of food and pet food. Heekin represented the country’s largest regional can maker.

Crown Cork & Seal Company

Company History

In August 1891, a foreman in a Baltimore machine shop hit upon an idea for a better bottle cap—a
piece of tin-coated steel with a flanged edge and an insert of natural cork. Soon this crown-cork cap
became the hit product of a new venture, Crown Cork & Seal Company. When the patents ran out,
however, competition became severe and nearly bankrupted the company in the 1920s. The faltering
Crown was bought in 1927 by a competitor, Charles McManus.15

Under the paternalistic leadership of McManus, Crown prospered in the 1930s, selling more than
half of the United States and world supply of bottle caps. He then correctly anticipated the success of
the beer can and diversified into can making, building one of the world’s largest plants in
Philadelphia. However, at one million square feet and containing as many as 52 lines, it was a
nightmare of inefficiency and experienced substantial losses. Although McManus was an energetic
leader, he engaged in nepotism and never developed an organization that could run without him.
Following his death in 1946, the company ran on momentum, maintaining dividends at the expense
of investment in new plants. Following a disastrous attempt to expand into plastics and a ludicrous
diversification into metal bird cages, Crown reorganized along the lines of the much larger
Continental Can, incurring additional personnel and expense that again brought the company near to
bankruptcy.

At the time, John Connelly, a paperbox factory worker since the age 15, had become eastern sales
manager of the Container Corporation of America. When he founded his own company, Connelly
Containers, Inc., in 1946, Crown promised him some business. That promise was forgotten by the
post-McManus regime, which loftily refused to “take a chance” on a small supplier like Connelly. By

15R.J. Whalen, “The Unoriginal Ideas That Rebuilt Crown Cork,” Fortune, October 1962.

Crown Cork & Seal in 1989 793-035
9

1955, when Crown’s distress became evident, Connelly began buying stock and in November 1956
was asked to be an outside director—a desperate move by the ailing company.

In April 1957, Crown Cork & Seal teetered on the verge of bankruptcy. Bankers Trust Company
withdrew Crown’s line of credit; it seemed that all that was left was to write the company’s obituary
when John Connelly took over the presidency. His rescue plan was simple—as he called it, “just
common sense.” Connelly’s first move was to pare down the organization, whereby he quickly
reduced headquarters staff by half to reach a lean force of 80. Abandoning its paternalistic culture he
returned the company to a simple functional organization. In less than two years Crown had
reduced its payroll by 24% and eliminated 1,647 jobs. As part of the company’s reorganization,
Connelly discarded divisional accounting practices; at the same time he eliminated the divisional line
and staff concept. Except for one accountant maintained at each plant location, all accounting and
cost control was performed at the corporate level; the corporate accounting staff occupied one-half
the space used by the headquarters group. In addition, Connelly disbanded Crown’s central research
and development facility.

The second step was to institute the concept of accountability. Connelly aimed to instill a deep-
rooted pride of workmanship throughout the company by establishing Crown managers as “owner-
operators” of their individual businesses. Connelly gave each plant manager responsibility for plant
profitability, including any allocated costs. (All company overhead, estimated at 5% of sales, was
allocated to the plant level.) Previously, plant managers had been responsible only for controllable
expenses at the plant level. Although the plant managers’ compensation was not tied to profit
performance, one senior executive pointed out that the managers were “certainly rewarded on the
basis of that figure.” Connelly also held plant managers responsible for quality and customer service.

Connelly next focused on the company’s debt concerns. By mid-July Crown had paid off the
banks, mainly through inventory reduction and liquidation, netting the company $47 million.
Connelly also introduced sales forecasting dovetailed with new production and inventory controls.
This move put pressure on the plant managers, who were no longer able to avoid layoffs by dumping
excess products into inventory.

By the end of 1957, Crown had, in one observer’s words, “climbed out of the coffin and was
sprinting.” Between 1956 and 1961, sales increased from $115 million to $176 million and profits
soared. Throughout the 1960s, the company averaged an annual 15.5% increase in sales and 14% in
profits. Connelly, not satisfied simply with short-term reorganizations of the existing company,
developed a strategy that would become its hallmark for the next three decades.

Connelly’s Strategy

According to William Avery, “From his first day on the job, Mr. Connelly structured the company
to be successful. He took control of costs and did a wonderful job taking us in the direction of
becoming owner-operators.” But what truly separated Connelly from his counterparts, Avery
explained, was that while he was continually looking for new ways of controlling costs, he was
equally hell-bent on improving quality. Connelly, described by Forbes as an individual with a
“scrooge-like aversion to fanfare and overhead,” emphasized cost efficiency, quality, and customer
service as the essential ingredients for Crown’s strategy in the decades ahead.

16R.J. Whalen, “The Unoriginal Ideas That Rebuilt Crown Cork.”

793-035 Crown Cork & Seal in 1989
10

Products and markets Recognizing Crown’s position as a small producer in an industry
dominated by American Can and Continental Can, 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.

A dramatic illustration of Connelly’s commitment to this strategy occurred in the early 1960s. In
1960, Crown held over 50% of the market for motor oil cans. In 1962, R. C. Can and Anaconda
Aluminum jointly developed fiber-foil cans for motor oil, which were approximately 20% lighter and
15% cheaper than the metal cans then in use. Despite the loss of sales, management decided that it
had other more profitable opportunities and that new materials, such as fiber-foil, provided too great
a threat in the motor oil can business. Crown’s management decided to exit from the oil can market.

In the early 1960s Connelly singled out two specific applications in the domestic market: beverage
cans and the growing aerosol market. These applications were called “hard to hold” because cans
required special characteristics to either contain the product under pressure or to avoid affecting
taste. Connelly led Crown directly from a soldered can into the manufacture of two-piece steel cans
in the 1960s. Recognizing the enormous potential of the soft drink business, Crown began designing
its equipment specifically to meet the needs of soft drink producers, with innovations such as two
printers in one line and conversion printers that allowed for rapid design changeover to
accommodate just-in-time delivery.17 After producing exclusively steel cans through the late 1970s,
Connelly spearheaded Crown’s conversion from steel to aluminum cans in the early 1980s.

In addition to the specialized product line, Connelly’s strategy was based on two geographic
thrusts: expand to national distribution in the United States and invest heavily abroad. Connelly
linked domestic expansion to Crown’s manufacturing reorganization; plants were spread out across
the country to reduce transportation costs and to be nearer customers. Crown was unusual in that it
did not set up plants to service a single customer. Instead, Crown concentrated on providing
products for a number of customers near their plants. In international markets, Crown invested
heavily in developing nations, first with crowns and then with cans as packaged foods became more
widely accepted. Metal containers generated 65% of Crown’s $1.8 billion 1988 sales, while closures
generated 30% and packaging equipment 5%.

Manufacturing When Connelly took over in 1957, Crown had perhaps the most outmoded
and inefficient production facilities in the industry. Dividends had taken precedence over new
investment, and old machinery combined with the cumbersome Philadelphia plant had generated
very high production and transportation costs. Soon after he gained control, Connelly took drastic
action, closing down the Philadelphia facility and investing heavily in new and geographically
dispersed plants. From 1958 to 1963, the company spent almost $82 million on relocation and new
facilities. From 1976 through 1989, Crown had 26 domestic plant locations versus 9 in 1955. The
plants were small (usually 2 to 3 lines for two-piece cans) and were located close to the customer
rather than the raw material source. Crown operated its plants 24 hours a day with unique 12-hour
shifts. Employees had two days on followed by two days off and then three days on followed by
three days off.

Crown emphasized quality, flexibility, and quick response to customer needs. One officer claimed
that the key to the can industry was “the fact that nobody stores cans” and when customers need
them “they want them in a hurry and on time. . . . Fast answers get customers.” To accommodate

17In the mid-1960s, growth in demand for soft drink and beer cans was more than triple that for traditional food cans.

Crown Cork & Seal in 1989 793-035
11

customer demands, some of Crown’s plants kept more than a month’s inventory on hand. Crown
also instituted a total quality improvement process to refine its manufacturing processes and gain
greater control. According to a Crown spokesperson, “The objective of this quality improvement
process is to make the best possible can at the lowest possible cost. You lower the cost of doing
business not by the wholesale elimination of people, but by reducing mistakes in order to improve
efficiency. And you do that by making everybody in the company accountable.”

Recycling In 1970, Crown formed Nationwide Recyclers, Inc., as a wholly owned subsidiary.
By 1989, Crown believed Nationwide was one of the top four or five aluminum can recyclers in the
country. While Nationwide was only marginally profitable, Crown had invested in the
neighborhood of $10 million in its recycling arm.

Research and Development (R&D) Crown’s technology strategy focused on enhancing the
existing product line. As one executive noted, “We are not truly pioneers. Our philosophy is not to
spend a great deal of money for basic research. However, we do have tremendous skills in die
forming and metal fabrication, and we can move to adapt to the customer’s needs faster than anyone
else in the industry.”18 For instance, Crown worked closely with large breweries in the development
of the two-piece drawn-and-ironed cans for the beverage industry. Crown also made an explicit
decision to stay away from basic research. According to one executive, Crown was not interested in
“all the frills of an R&D section of high-class, ivory-towered scientists. . . . There is a tremendous
asset inherent in being second, especially in the face of the ever-changing state of flux you find in this
industry. You try to let others take the risks and make the mistakes. . . .”

This philosophy did not mean that Crown never innovated. For instance, Crown was able to beat
its competitors into two-piece can production. Approximately $120 million in new equipment was
installed from 1972 through 1975, and by 1976 Crown had 22 two-piece lines in production—more
than any other competitor.19 Crown’s research teams also worked closely with customers on specific
customer requests. For example, a study of the most efficient plant layout for a food packer or the
redesign of a dust cap for the aerosol packager were not unusual projects.

Marketing and customer service The cornerstone of Crown’s marketing strategy was, in
John Connelly’s words, the philosophy that “you can’t just increase efficiency to succeed; you must at
the same time improve quality.” In conjunction with its R&D strategy, the company’s sales force
maintained close ties with customers and emphasized Crown’s ability to provide technical assistance
and specific problem solving at the customer’s plant. Crown’s manufacturing emphasis on flexibility
and quick response to customer’s needs supported its marketing emphasis on putting the customer
first. Michael J. McKenna, president of Crown’s North American Division, insisted, “We have always
been and always will be extremely customer driven.”20

Competing cans were made of identical materials to identical specifications on practically
identical machinery, and sold at almost identical prices in a given market. At Crown, all customers’
gripes went to John Connelly, who was the company’s best salesman.21 A visitor recalled being in his
office when a complaint came through from the manager of a Florida citrus-packing plant. Connelly

18R.G. Hamermesh, M.J. Anderson, Jr., and J.E. Harris, “Strategies for Low Market Share Business,” Harvard Business Review
(May-June 1978): 99.

19In 1976, there were 47 two-piece tinplate and 130 two-piece aluminum lines in the United States.

20One Hundred Years, Crown Cork & Seal Company, Inc.

21 Whalen, “The Unoriginal Ideas That Rebuilt Crown Cork.”

793-035 Crown Cork & Seal in 1989
12

assured him the problem would be taken care of immediately, then casually remarked that he would
be in Florida the next day. Would the plant manager join him for dinner? He would indeed. As
Crown’s president put the telephone down, his visitor said that he hadn’t realized Connelly was
planning to go to Florida. “Neither did I,” confessed Connelly, “until I began talking.”22

Financing After he took over in 1957, Connelly applied the first receipts from the sale of
inventory to get out from under Crown’s short-term bank obligations. He then steadily reduced the
debt/equity ratio from 42% in 1956 to 18.2% in 1976 and 5% in 1986. By the end of 1988, Crown’s
debt represented less than 2% of total capital. Connelly discontinued cash dividends in 1956, and in
1970 repurchased the last of the preferred stock, eliminating preferred dividends as a cash drain.
From 1970 forward, management applied excess cash to the repurchase of stock. Connelly set
ambitious earnings goals and most years he achieved them. In the 1976 annual report he wrote, “A
long time ago we made a prediction that some day our sales would exceed $1 billion and profits of
$60.00 per share. Since then, the stock has been split 20-for-1 so this means $3.00 per share.” Crown
Cork & Seal’s revenues reached $1 billion in 1977 and earnings per share reached $3.46. Earnings per
share reached $10.11 in 1988 adjusted for a 3-for-1 stock split in September 1988.

International A significant dimension of Connelly’s strategy focused on international growth,
particularly in developing countries. Between 1955 and 1960, Crown received what were called
“pioneer rights” from many foreign governments aiming to build up the industrial sectors of their
countries. These “rights” gave Crown first chance at any new can or closure business introduced into
these developing countries. Mark W. Hartman, president of Crown’s International Division,
described Connelly as “a Johnny Appleseed with respect to the international marketplace. When the
new countries of Africa were emerging, for example, John was there offering crown-making
capabilities to help them in their industrialization, while at the same time getting a foothold for
Crown. John’s true love was international business.”23 By 1988, Crown’s 62 foreign plants generated
44% of sales and 54% of operating profits. John Connelly visited each of Crown’s overseas plants.
(See Exhibit 6 for map of plant locations.)

Crown emphasized national management wherever possible. Local people, Crown asserted,
understood the local marketplace: the suppliers, the customers, and the unique conditions that drove
supply and demand. Crown’s overseas investment also offered opportunities to recycle equipment
that was, by U.S. standards, less sophisticated. Because can manufacturing was new to many regions
of the world, Crown’s older equipment met the needs of what was still a developing industry
overseas.

Performance Connelly’s strategy met with substantial success throughout his tenure at Crown.
With stock splits and price appreciation, $100 invested in Crown stock in 1957 would be worth
approximately $30,000 in 1989. After restructuring the company in his first three years, revenues
grew at 12.2% per year while income grew at 14.0% over the next two decades (see Exhibit 7). Return
on equity averaged 15.8% for much of the 1970s, while Continental Can and American Can lagged far
behind at 10.3% and 7.1%, respectively. Over the period 1968-1978 Crown’s total return to
shareholders ranked 114 out of the Fortune 500, well ahead of IBM (183) and Xerox (374).

In the early 1980s, flat industry sales, combined with an increasingly strong dollar overseas,
unrelenting penetration by plastics, and overcapacity in can manufacturing at home, led to declining
sales revenues at Crown. Crown’s sales dropped from $1.46 billion in 1980 to $1.37 billion by 1984.

22Whalen, “The Unoriginal Ideas That Rebuilt Crown Cork.”

23One Hundred Years, Crown Cork & Seal Company, Inc.

Crown Cork & Seal in 1989 793-035

However, by 1985 Crown had rebounded and annual sales growth averaged 7.6% from 1984 through
1988 while profit growth averaged 12% (see Exhibits 8 and 9). Over the period 1978-1988 Crown’s
total return to shareholders was 18.6% per year, ranking 146 out of the Fortune 500. In 1988, Business
Week noted that Connelly—earning a total of only $663,000 in the three years ending in 1987 garnered
shareholders the best returns for the least executive pay in the United States. As an industry analyst
observed, “Crown’s strategy is a no-nonsense, back-to-basics strategy—except they never left the
basics.”24

John Connelly’s Contribution to Success

Customers, employees, competitors, and Wall Street analysts, attributed Crown’s sustained
success to the unique leadership of John Connelly. He arrived at Crown as it headed into bankruptcy
in 1957, achieved a 1,646% increase in profits on a relatively insignificant sales increase by 1961, and
proceeded to outperform the industry’s giants throughout the next three decades. A young
employee expressed the loyalty created by Connelly: “If John told me to jump out the window, I’d
jump—and be sure he’d catch me at the bottom with a stock option in his hand.”

Despite the employees’ loyalty, Connelly was a difficult man to please. Crown’s employees had
to get used to Connelly’s tough, straight-line management. Fortune credited Crown’s success to
Connelly, “whose genial Irish grin masks a sober salesman executive who believes in the eighty-hour
week and in traveling while competitors sleep.” He went to meetings uninvited, and expected the
same devotion to Crown of his employees as he demanded of himself. As one observer remembered:

The Saturday morning meeting is standard operating procedure. Crown’s executives travel
and confer only at night and on weekends. William D. Wallace, vice president for operations,
travels 100,000 miles a year, often in the company plane. But Connelly sets the pace. An
associate recalls driving to his home in the predawn blackness to pick him up for a flight to a
distant plant. The Connelly house was dark, but he spotted a figure sitting on the curb under a
street light, engrossed in a loose-leaf book. Connelly’s greeting, as he jumped into the car: “I
want to talk to you about last month’s variances.”25

Avery’s Challenge in 1989

Avery thought long and hard about the options available to him in 1989. He considered the
growing opportunities in plastic closures and containers, as well as glass containers. With growth
slowing in metal containers, plastics was the only container segment that held much promise.
However, the possibility of diversifying beyond the manufacture of containers altogether had some
appeal, although the appropriate opportunity was not at hand. While Crown’s competitors had
aggressively expanded in a variety of directions, Connelly had been cautious, and had prospered.
Avery wondered if now was the time for a change at Crown.

Within the traditional metal can business, Avery had to decide whether or not to get involved in
the bidding for Continental Can. The acquisition of Continental Can Canada (CCC)—with sales of
roughly $400 million—would make Canada Crown’s largest single presence outside of the United
States. Continental’s USA business—with estimated revenues of $1.3 billion in 1989—would double

24″These Penny-Pinchers Deliver A Big Bang For Their Bucks,” Business Week, May 4, 1987.

25 Whalen, “The Unoriginal Ideas That Rebuilt Crown Cork.”

793-035 Crown Cork & Seal in 1989

the size of Crown’s domestic operations. Continental’s Latin American, Asian and Middle Eastern
operations were rumored to be priced in the range of $100 million to $150 million. Continental’s
European operations generated estimated sales of $1.5 billion in 1989 and included a work force of
10,000 at 30 production sites. Potential bidders for all, or part of Continental’s operations, included
many of Crown’s U.S. rivals in addition to European competition: Pechiney International of France,
Metal Box of Great Britain (which had recently acquired Carnaud SA), and VIAG AG, a German
trading group, among others.

Avery knew that most mergers in this industry had not worked out well. He also thought about
the challenge of taking two companies that come from completely different cultures and bringing
them together. There would be inevitable emotional and attitudinal changes, particularly for
Continental’s salaried managers and Crown’s “owner-operators.” Avery also knew that the merger
of American Can and National Can had its difficulties. That consolidation was taking longer than
expected and, according to one observer, “American Can would be literally wiped out in the end.”

Avery found himself challenging Crown’s traditional strategies and thought seriously of drafting
a new blueprint for the future.

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793-035 Crown Cork & Seal in 1989
16

Exhibit 2 Top U.S. Users of Containers, 1989

Rank

Company

Soft Drink/
Beverage Sales

($000)

Principal Product Categories

1 The Coca-Cola Companya
(Atlanta, GA)

$8,965,800 Soft drinks, citrus juices, fruit drinks

2 Anheuser-Busch Companies, Inc.b
(St. Louis, MO)

7,550,000 Beer, beer imports

3 PepsiCo Inc.
(Purchase, NY)

5,777,000 Soft drinks, bottled water

4 The Seagram Company, Ltd.
(Montreal, Quebec, Canada)

5,581,779 Distilled spirits, wine coolers, mixers,
juices

5 Coca-Cola Enterprises, Inc.a
(Atlanta, GA)

3,881,947 Soft drinks

6 Philip Morris Companies, Inc.
(New York, NY)

3,435,000 Beer

7 The Molson Companies, Ltd.
(Toronto, Ontario, Canada)

1,871,394 Beer, coolers, beer imports

8 John Labatt, Ltd.
(London, Ontario, Canada)

1,818,100 Beer, wine

9 The Stroh Brewery Companyc
(Detroit, MI)

1,500,000 Beer, coolers, soft drinks

10 Adolph Coors Companyd
(Golden, CO)

1,366,108 Beer, bottled water

Source: Beverage World, 1990-1991 Databank.

aThe Coca-Cola Company and Coca-Cola Enterprises purchased (vs. in-house manufacture) all of its cans in 1989. Coca-Cola
owned 49% of Coca-Cola Enterprises—the largest Coca-Cola bottler in the United States.

bIn addition to in-house manufacturing at its wholly owned subsidiary (Metal Container Corporation), Anheuser-Busch
Companies purchased its cans from four manufacturers. The percentage of cans manufactured by Anheuser-Busch was not
publicly disclosed.

cOf the 4 to 5 billion cans used by The Stroh Brewery in 1989, 39% were purchased and 61% were manufactured in-house.

dAdolph Coors Company manufactured all of its cans, producing approximately 10 to 12 million cans per day, five days per
week.

Crown Cork & Seal in 1989 793-035

Exhibit 3 Comparative Performance of Major Aluminum Suppliers, 1988 (dollars in millions)

Sales

Net

Income

Net

Profit

Margin %

Long-Term
Debt

Net Worth

Earnings
Per Share

Alcan Aluminum

1988 $8,529.0 $931.0 10.9% $1,199.0 $4,320.0 $3.85
1987 6,797.0 445.0 6.5 1,336.0 3,970.0 1.73
1986 5,956.0 177.0 3.0 1,366.0 3,116.0 .79
1985 5,718.0 25.8 .5 1,600.0 2,746.0 .12
1984 5,467.0 221.0 4.0 1,350.0 2,916.0 1.00

ALCOA
1988 9,795.3 861.4 8.8 1,524.7 4,635.5 9.74
1987 7,767.0 365.8 4.7 2,457.6 3,910.7 4.14
1986 4,667.2 125.0 2.7 1,325.6 3,721.6 1.45
1985 5,162.7 107.4 2.1 1,553.5 3,307.9 1.32
1984 5,750.8 278.7 4.8 1,586.5 3,343.6 3.41

Reynolds Metalsa
1988 5,567.1 482.0 8.7 1,280.0 2,040.1 9.01
1987 4,283.8 200.7 4.7 1,567.7 1,599.6 3.95
1986 3,638.9 50.3 1.4 1,190.8 1,342.0 .86
1985 3,415.6 24.5 .7 1,215.0 1,151.7 .46
1984 3,728.3 133.3 3.6 1,146.1 1,341.1 3.09

Source: Value Line.

aReynolds Metals Company was the second-largest aluminum producer in the United States. The company was also the third-
largest manufacturer of metal cans with a 7% market share.

Exhibit 4 Major U.S. Producers of Blow-Molded Plastic Bottles, 1989 (dollars in millions)

Company Total Sales Net Income Plastic Sales Product Code Major Market

Owens-Illinois $3,280 $(57) $754 1,3,4,6 Food, health and beauty

pharmaceutical
American National 4,336 52 566 1,2,3,6 Beverage, household,

personal care,
pharmaceutical

Cnstar 544 12 544 1,2,3,4,6 Soft drink, milk, food
Johnson Controls 3,100 104 465 2 Soft drink, beverages
Continental Can 3,332 18 353 1,2,3,4,5,6 Food, beverage,

household, industrial
Silgan Plastics 415 96 100 1,2,3,4,6 Food, beverage,

household,
pharmaceutical,
personal care

Sonoco Products Co. 1,600 96 N/A 1,3,4,6 Motor oil, industrial

Source: The Rauch Guide to the U.S. Plastics Industry, 1991; company annual reports.

Product code: (1) HDPE; (2) PET; (3) PP; (4) PVC; (5) PC; (6) multilayer.

793-035 Crown Cork & Seal in 1989

Exhibit 5 Comparative Performance of Major Metal Can Manufacturers (dollars in millions)

Companya

Net Sales

SG&A as a
% of Sales

Gross

Margin

Operating

Income

Net

Profit

Return

on Sales

Return on
Average
Assets

Return on
Average
Equity

Ball Corporation
1988 $1,073.0 8.1% $161.7 $113.0 $47.7 4.4% 5.7% 11.6%
1987 1,054.1 8.5 195.4 147.6 59.8 5.7 7.8 15.7
1986 1,060.1 8.2 168.0 150.5 52.8 5.0 7.6 15.2
1985 1,106.2 7.5 140.7 140.5 51.2 4.6 8.1 16.4
1984 1,050.7 7.9 174.1 123.9 46.3 4.4 7.8 16.6
1983 909.5 8.2 158.2 114.6 39.0 4.3 7.3 15.6
1982 889.1 8.4 147.4 100.5 34.5 3.9 6.9 15.8

Crown Cork & Seal
1988 1,834.1 2.8 264.6 212.7 93.4 5.1 8.6 14.5
1987 1,717.9 2.9 261.3 223.3 88.3 5.1 8.7 14.5
1986 1,618.9 2.9 235.3 202.4 79.4 4.9 8.8 14.3
1985 1,487.1 2.9 216.4 184.4 71.7 4.8 8.6 13.9
1984 1,370.0 3.1 186.6 154.8 59.5 4.4 7.3 11.4
1983 1,298.0 3.3 182.0 138.9 51.5 4.0 6.2 9.3
1982 1,351.8 3.3 176.2 132.5 44.7 3.3 5.2 7.9

Heekin Can, Inc.
1988 275.8 3.7 38.9 36.4 9.6 3.5 4.8 22.6
1987 230.4 4.0 33.6 30.2 8.8 3.8 5.8 26.3
1986 207.6 4.1 31.1 28.0 7.0 3.4 5.4 27.5
1985 221.8 3.2 31.8 29.0 6.8 3.1 5.2 42.5
1984 215.4 2.7 28.4 26.5 5.5 2.6 4.3 79.7
1983 181.6 3.2 24.4 22.8 3.8 2.1 3.3 102.7
1982b —

Van Dorn Company
1988 333.5 16.5 75.3 26.7 11.7 3.5 6.6 12.2
1987 330.0 15.7 73.6 28.4 12.3 3.7 7.7 12.7
1986 305.1 16.3 70.4 26.5 11.7 3.8 7.7 12.9
1985 314.3 15.1 75.6 33.6 15.4 4.9 10.6 19.0
1984 296.4 14.7 74.9 36.5 16.8 5.7 12.9 24.9
1983 225.9 14.8 48.5 20.1 7.4 3.3 6.8 12.8
1982 184.3 16.1 37.7 12.7 3.6 2.0 3.5 6.6

American Can Companyc
1985 2,854.9 22.6 813.4 1670.0 149.1 5.2 5.2 10.9
1984 3,177.9 18.0 740.8 168.3 132.4 4.2 4.9 11.2
1983 3,346.4 15.0 625.4 123.6 94.9 2.8 3.5 9.7
1982 4,063.4 16.1 766.3 113.4 23.0 0.6 0.8 2.4
1981 4,836.4 15.0 949.6 223.0 76.7 1.2 2.7 7.2
1980 4,812.2 15.8 919.5 128.1 85.7 1.8 3.1 8.0

National Can Companyd
1983 1,647.5 5.1 215.3 93.5 22.1 1.3 2.7 6.3
1982 1,541.5 4.6 206.3 100.7 34.1 2.2 4.4 10.0
1981 1,533.9 4.6 191.7 86.3 24.7 1.6 3.1 7.5
1980 1,550.9 5.4 233.7 55.0 50.6 3.3 6.4 16.7

The Continental Group, Inc.e
1983 4,942.0 6.3 568.0 157.0 173.5 3.5 4.4 9.4
1982 5,089.0 6.4 662.0 217.0 180.2 3.5 4.3 9.6
1981 5,291.0 7.2 747.0 261.0 242.2 4.6 5.9 13.6
1980 5,171.0 7.2 700.0 201.0 224.8 4.3 5.5 13.7
1979 4,544.0 6.5 573.0 171.0 189.2 4.2 5.3 13.1

Source: Value Line and company annual reports (for SGA, COGS, and Asset figures).
aRefer to Exhibit 3 for Reynolds Metals Company. bFigures not disclosed for 1982. cIn 1985, packaging made up 60% of total sales at American
Can, with the remainder in specialty retailing. In 1986 Triangle Industries purchased the U.S. packaging business of American Can. In 1987,
American National Can was formed through the merger of American Can Packaging and National Can Corporation. In 1989, Triangle sold
American National Can to Pechiney, S.A. dIn 1985, Triangle Industries bought National Can. eIn 1984, Peter Kiewit Sons purchased The
Continental Group. SG&A as a percentage of sales for Continental Can hovered around 6.5% through the late 1980s.

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Industry Analysis Application with Harvard Business School case

Details on your five page extended case write–up on CC&S applying the 5 Forces Analysis
(unlimited appendix).

Hi Class –

Over the next two weeks, our Session 7 and Session 8 will consist of an Industry
Analysis Application with a Harvard Business School case (the CC&S case). The CC&S
case is an incredibly rich case and an excellent one to develop your industry analysis
skills! Therefore, I’ve allowed the case write up to be five pages in length (an extension
from the more typical 3-4 pages), and with unlimited appendix.

I’d like to talk you through the approach. First, start with the appendix. Use the
appendix to recreate Figure 3.3 (from p.66 in Grant), as well as Figure 3.5 (from p.81
in Grant). Go ahead and try your best to fill out all of the boxes as it applies to our case
at hand.

Let’s take it together now: So what industry are we in? Who is in the IR box? What is
the concentration in this industry? What is the diversity of competitors? Are there
excess capacity issues and exit barriers? Work towards these issues and then once
completed, take a step back and ask yourself – so is IR low, med or high? That is to say,
do you think the level of industry rivalry is low, medium or high?

Repeat this process as you go on to the other boxes.

So let’s take it together again with the supplier box: So who is in the supplier box? What
is the size and concentration of the suppliers relative to the IR’s?

Follow each issue through, then take a step back and ask yourself – What is the
relationship between the suppliers and the IR’s? Who has the power? Do the suppliers
have more power over the IR, or do the IR’s have more power over the suppliers?

Keep moving through the other boxes. Remember the goal – you are trying to
determine if the industry structure allows for supra-normal profitability. A very
unattractive industry is this: IR – high, Supplier power – high, Buyer Power – high,
Barriers to Entry – low, and Substitutes – high. This is the recipe for a nightmare
industry structure because it makes it very competitive (and very hard to make any
money!).

On the flip, a very attractive industry is this: IR – low, Supplier power – low, Buyer
Power – low, Barriers to Entry – high, and Substitutes – low. This is the recipe for a
DREAM industry structure because it is structural attractive, making it very easy to make
money!

Once you have your Figure 3.3 done – then go on to Figure 3.5. Again, fill out all the
boxes and go through the metal gymnastics to identify the industry key success factors.

After you have done your very best at using these two tools, think hard about how your
tools can help you to answer the case questions. After a lot of thought, only then go to
your write-up.

Use your five pages (double-spaced, Times new Roman, 12-point font, one inch margins)
to answer the questions, using the tools to showcase and support your analysis. Take a
position. Back up your statements. Advise the protagonist.

Your ability to analyze industries is a skill you will use for the rest of your career. Dig in
and yes, it is challenging work (and many times confusing and frustrating because it is
hard work!). However, industry analysis provides you with a strategic mindset on which
you can identify problems and issues that others who have not been well trained in
strategy will miss. How great is that? Really great. So jump in and take a stab at it – you
can do this!

All my best and look forward to reading your CC&S write ups!

Industry Analysis

This topic will provide an overview of the processes of strategy identification, evaluation, and
formulation in single business firms. A critical task for any top executive is to develop a strategy for his
or her organization to assure its survival in the face of a changing environment. Critical steps in that
process include identifying the firm’s current strategy and its key components, evaluating that strategy in
light of the need for change, and then making the necessary changes. In addition, formulating a
competitive strategy requires an analysis of industry structure, as well as actions that attempt to create a
competitive advantage. These and other issues will be addressed in our discussion of Crown, Cork &
Seal by applying the concepts presented in the assigned readings.

This is the third update of the classic CC&S case. The first covered the company up to 1964. At
that time, Connelly had turned a very sick company around. A major issue for discussion was whether
success would continue. This case describes CC&S up through 1989, and the issue of continued success
is still important. One of the things that makes a general manager’s job interesting is that the issue never
goes away. We will be concerned with both business strategy and industry dynamics in this case.
Continuing consolidation in the industry raises the question of whether CC&S should become a bidder in
the apparent sale of Continental Can. Management style also becomes an issue in this case. Connelly’s
style is evident from the case. You may want to compare Connelly with other general managers you will
meet in the cases. Why are some more successful than others? How can managers with such different
styles be successful?

Case: Crown Cork & Seal in 1989

Preparation Questions:

1. What are the industry structure and dynamics of the metal container industry? What are the
industry trends? Implications of these trends?

2. What strategy does CC&S have for competing in this industry? What advantages does a

firm the size of CC&S have for competing with American Can and Continental Can?

3. What are the major issues that William Avery faces in 1989? What advice would you offer

him about these issues?

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5 page industry analysis case study

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