Crown Cork and Seal Company

Introduction

Crown Cork and Seal Company is a very popular manufacturing organization known for the production of high quality cans either for food or beverage packaging. Its high profile has over the years been attributed to good management and skill among the workers. Generally, in business, a company’s success is mostly reliant on the commitment of the managers, the level of competence among the employees/workers and most importantly, the ability to make timely decisions and to use skill and due care in cases of emergency. These are qualities that were evidently observed in the manufacturing firm. It is also worth noting that the success of the firm which backdates to 1982 has seen it grow and establish many branches in different regions, thus, increasing their capacity. Though it is based in the United States, financial analysts have also established that its popularity has grown tremendously in other countries as well. This is evident from the economic fact that it earns a greater percentage of its income/returns from outside than within. Due to these factors, the firm has been subject to massive competition from rivals trying to break even in the same field. Similarly, we realize the application of the Porter’s Five Forces in the management of the firm which it partly owes to its success. Thus, this paper is aimed at discussing the Porter concepts and their application in the business which has clearly led to its success in the field.

The ‘Porter’s Five Forces’ is basically used for industry analysis, the study of common and different trends in the particular industry and how they affect other firms in the same field. This is because for a field to qualify to be an industry, it must have enough firms that deal in the same kind of production and engage in healthy competition. This concept breaks down the operations of an industry into very fine details that enable a person understand the mystery behind success or failure in business. We realize that most companies, like humans, form a time plan and set targets regarding their operations and where they wish to be in a number of years from a particular time. This is almost unachievable without considering the actual environment which they are dealing with and the competition. Most importantly, when an organization especially a manufacturing firm is not well aware of the its strengths and weaknesses and those of the competing firms, chances that it will reach its target in the industry are limited. However, knowing the above mentioned factors will be a step forward towards making a boom in the market. When the firms are competing on the same level, it will be right to define it as healthy competition with a balance, thus, any advantage over another will be due to unique skills exhibited.

The different Porter Five Forces that analyze industries and their competitive capabilities in the field include:

Buyer Power

Basically, this is an application of the influence of the buyers in the industry and their capability of controlling the existing prices. This comes down to the demand and supply forces that are attributed to the control of market prices. In an industry, buyers may be ranked in different categories depending on the frequency of usage and the contribution to a firm’s general revenue. Similarly, the loss likely to be suffered should the ‘important’ buyers decide to switch should be considered since in most cases, they determine the stability of the manufacturing firm. All these factors are dependent on the number of buyers, if many, they are controlled by the firm, if few, they can easily determine the prices of the goods or services sold.

The metal cans industry that Crown Cork and Seal competed in 1989 was aced by similar circumstances that distinguished one firm’s ability from another. A detailed analysis by (Bradley, 2005) reveals that the many firms in the industry had not achieved the full capacity of controlling their products and were not able to distinguish their goods as well. The choices that were made available to the buyers were limited due to inability to differentiate which product belonged to which firm specifically. Consequently, buyers would prefer the ones with lower prices without much consideration of the manufacturer. This gave them the power over the prices that were set for them in the market, thus they had to be lowered to their expectations or better still standardized to ensure healthy competition. (Bradley, 2005) also noted that where the buyers purchased the cans, they did not use them as a final commodity. Instead, they were used by food companies to package their product to ready market. As has been proved by business, this kind of transacting would be done at the lowest prices possible, thus, the prices were dropped to almost the cost prices to ensure survival of the firms.

Supplier Power

Under this force, an analysis of the behavior of the suppliers of input is required. The study of economics has proved that there are different factors that drive the demand and supply forces, thus, they may be elastic, inelastic or unitary. These can be derived by the consideration of the uniqueness of the inputs used and the readiness in availability of the suppliers. It can also be determined by the level of control the supplier has over the client which in this case is the Crown Cork and Seal Company. In a case where the company at hand needs the suppliers less than they need them, they will find it easier to manage the cost of production since they are partially in control of the products used as input. When the firm is aware of these issues, the management can plan ahead and be aware of the issues to expect.

According to Bradley, (2005), “The metal container industry, representing 61% of all packaged products in the United States in 1989, produced metal cans … industrial goods.” We realize that the industry was quite competitive when it came to the inputs supplied for production. Similarly, suppliers of the metals that were later on manufactured and transformed into finished packaging cans were diverse and did not necessarily concentrate on one field. Thus, we realize that the organization’s assurance for ready market gave them an upper hand over the suppliers. Where the metal providers had large numbers that needed ready market, the manufacturing firm in question controlled the prices since they could offer the ready market. Thus, unexpected increase in prices was avoidable which gave the Crown Cork and Seal a competitive advantage over the other firms in the same production.

Competitor Power

It is worth noting that in most business set ups, competition is what leads to innovation and coming up with new ideas that will enable each firm survive in the market and maintain its clients. An industry without competition is likely to lack innovation, maintain the same level of profits and under certain circumstances, operate at break even point with no profits to show. Researchers have in most cases compared the concept of competition as a case of survival for the fittest and only the strong ones survive. In business, a firm which cannot use innovation and creativity to improve its products and boost its performance is likely to be kicked out and considered unable to cope with the existing situation.

In the metal can industry where Crown Cork and Seal Company belonged, (Bradley, 2005) states/argues that the level of competition was not satisfactory. Though the mentioned firm stood out, it may have been attributed to the competence and unique abilities of their management team that made decisions and worked towards distinguishing the firm. The industry was there fore characterized with dropping profits that in almost all the cases moved towards break even. Had there been competition and desire to get ranked higher, different and much more improved cans could have been seen which would be a good step forward for the industry and the buyers who would appreciate them more. According to Bradley, (2005), “competing cans ere made of identical materials to identical specifications on practically identical machinery…. in a given market.” This goes as far to show the lack of advancement and uniqueness. To distinguish themselves from this industry trend, the new management team headed by John Connelly worked towards the fact that not only efficiency was needed for improvement but rather, quality was key. The creation of uniqueness and consistent improvement of the quality offered would give competitive advantage and ensure healthy competition.

Threat of Substitutes

Substitutes are generally products from different manufacturers, different kind but serve the same purpose as the product in question. Buyers of the commodity could therefore decide on which product to buy and incase of extreme prices or reduction in quality of the other, they could easily shift. In this kind of circumstances, they are forced to ensure the quality is very high and that the services offered to their clients are too good to easily let go. This goes as far as affecting the price elasticity of the commodity. It is relatively higher where there are readily available substitutes for the product.

In the case of the metal can industry, the substitutes were not as much as would be expected. Since the production was of metal cans, possible substitutes would be glass or even plastic. Though not as much, Bradley, (2005) stated that, “… the 1980s, plastics were … with its share growing from 9% to 18% in nine years. This was a substitute that would have easily been taken care of by the metal industry. We realize that most soft drinks at the time were also packed in glass bottles, for instance, coca cola. Thus, due to the reasons discussed regarding competition, the metal industry was not as willing to make sure they ruled the market, thus, gave substitutes a relatively higher competitive advantage. It was more likely for them to grow because of the obvious innovation and most organizations that needed cans resolve to use the substitutes rather than the metal. The Crown Cork and Seal Company competed in this kind of industry where the substitutes were an actual threat to the growth of the metal industry. These are all economically proven and with the technological changes and innovation in today’s industry, consistent growth is unavoidable.

Threat of New Entry

The power and ability of the existing firms in a specific industry to control their operations is highly reliant on the ease of new firms to enter the industry and adopt similar kind of production. To ensure this does not happen easily, he industry must set its standards high and make it very difficult for other firms likely to create competition to join. This is usually in terms of costs, technology, quality and economies of scale. Where the costs of joining are high, most firms will shy away from joining since they will find it very difficult to raise the capital or risk on a very high priced investment. (Bradley, 2005) argues that the ease with which one could join the metal industry was quite high due to their inability o make the standards high. As discussed in competition, where there is little competition prices tend to go very low. With low prices, the entry of new firms became very affordable, thus, control of the industry became quite difficult.

Conclusion

It is worth noting that the Porter’s Five Forces are very important factors to consider when trying penetrating a market. To ensure stability of an individual firm, they have to ensure that the five are considered so that the way forward can also be determined. It would be challenging, as has been seen for Crown Cork and Seal, to succeed in a relaxed industry. However, though the industry was not as active, the management of the firm is credited with the ability to improve the situation and make the company competitive.

References:

Bradley, S. (2005). Crown Cork and Seal in 1989. Harvard Business School.