Focus III

...capture a larger amount of the value it creates for it's customers.

Putting soda in a can isn't all that much of a big technical feat.  Crown isn't the only company that can do this.  Why would that be a high-profit business?  Harvard Business School case writers and stock analysts all say Crown's strategy is to focus on hard-to-hold applications.  But suppose that we are very stubborn and want to do our own analysis.  If you are serious about strategy work, you must always do your own analysis.  A strategy is not necessarily what the CEO intended or what some executive says it is.  Sometimes they are hiding the truth, sometimes they are misstating it, and sometimes they have taken a position as leader without really knowing the reasons for their company's success.

Identifying strategy begins by looking at each policy of a company and noticing those that are different from the norm in the industry.  Then figure out what the common policies are targeted on accomplishing.  In the case of Crown, two policies are technical assistance and  rapid response.  Major beer companies probably don't need much technical assistance with cans and can probably teach the can companies a thing or two.  Technical assistance is what is needed by smaller companies.  Rapid response may be aimed at smaller companies or even seasonal orders or the introduction of new products.

On the manufacturing front, Crown's plants are smaller and all have at least two customers, unlike the larger can makers who tend to focus on one big customer for the benefit of the longer runs.   Crown's manufacturing policies are aimed at speed and less production per customer.  Crown's policies, technical assistance, rapid response, less production per customer, speed and rush orders all combine to make them an expert at doing short runs.   Crown isn't the biggest can maker, but it makes the most money.  As a result Crown is not captive to a single large customer and is able to capture a larger amount of the value it creates for it's customers.

ACTION POINT:  Craft policies that create the most value for your customer.

Focus II

It has great customer service, lots of technical assistance for customers and great responsiveness, with an emphasis on speed. 

To begin identifying a company's strategy it is usually most helpful to examine the competitive environment.  That is, to look at how the competitors make their livings.  In the Crown case, there are three major can companies: Continental Can, National Can and American Can.  Most beverage companies had at least two sources of can supply.  Further, can manufacturers often set up plants to supply a particular customer.  There is a very direct competition between close by can makers, whose products have to be essentially indistinguishable.  Big can makers have accepted being captive producers because of the benefits of long production runs--there is a large cost to changing a line from making one type of can to another.  Major can companies have very log profit rates--4 to 5 percent return on assets. 

Crown on the other hand beats the big three by a substantial margin.  On average it seems to be fifty to sixty percent  more profitable.  Crown specializes in hard-to-hold applications-aerosols and soft drinks.  It has great customer service, lots of technical assistance for customers and great responsiveness, with an emphasis on speed. 

ACTION POINT: Strategy is sometimes not what it appears to be as will be seen in the Crown example if you stay tuned. 

Focus

the analysis of unstructured information is hard, time-consuming work 

Crown, Cork and Seal, a maker of metal containers is one of the oldest case studies in the strategy collection.  Crown's strategy had been crafted in the early 1960's by John F. Connalley.  The company achieved a phenomenal record providing an average return to shareholders of 19 percent per year.

What was Crown's secret?  The case repeats the conventional wisdom that Crown specialized in container for hard-to-hold products such as aerosols and carbonated soft drinks.  While true, of course, this description is neither complete nor terribly useful in understanding how Crown competed.  Nevertheless most analysts stop there.  They will not have noticed that the details of Crown's policies point in other directions as well.  In general people will not push further because the analysis of unstructured information is hard, time-consuming work that requires both rich knowledge of facts and well-developed skills in logic, deduction, and induction.

ACTION POINT:  Gather facts and hone your skills in logic, deduction and induction to prepare to study strategy.

The Function of Management is to Produce Results

Above all management is responsible for producing results.

Management has to give direction to the institution it manages.  It has to think through the institution’s mission, has to set its objectives, and has to organize resources for the results the institution has to contribute.  Management is, indeed, “entrepreneur” and responsible for directing vision and resources toward greatest results and contributions.

In performing these essential functions, management everywhere faces the same problems.  It has to organize work for productivity; it has to lead the worker toward productivity and achievement.  It is responsible for the social impact of the enterprise.  Above all, it is responsible for producing the results – Whether economic performance, student learning, or patient care – for the sake of which each institution exists.

ACTION POINT:  Is your organization delivering the results it should? If not, articulate your mission.

Order out of Chaos III

This has created difficult-to-replicate resources...

Paccar's strategy--its design--is its way of dealing with these three obstacles to being a quality leader.    The first element of its strategy is a subtle shift away form seeing quality purely in terms of operating cost.  Instead, Paccar views quality through the eyes of the owner-driver.  Owner-drivers increase their wages by pushing themselves harder driving sixteen hours a day or more.  Owner-drivers care about efficiency but also look beyond cost per mile, because the truck is their home, office, lounge, and TV room on the road.

Second, owner-drivers buy Kenworth and Peterbilt trucks from experienced dealers who use 3-D computer displays to select from hundred of customizing option.   Third, Paccar builds each truck to order, keeping inventories low and using a network of suppliers for its main components and parts.  The trucks are designed with as many parts in common as practicable.

Paccar's strategy is based on doing something well and consistently over a long period of time. This has created difficult-to-replicate resources:  it's image, its network of experienced dealers, its loyal customers, and the knowledge embedded in its staff of designers and engineers.  This position and these kinds of slow-build resources are simply not available to companies, mesmerized by the stock market, who want big results in twelve months.

A flexible approach to manufacturing makes Paccar's variable costs higher than competitor's but provides stability for its designers and engineers.  In addition, its higher margins create a loyal, more dedicated network of dealers.  All of this works, in part, because it is not in a high-growth industry that would attract large new investments from outside.  To attack it directly, a rival would have to create new brands and new designs, and, quite possibly, sign up new dealers.  This high-end market isn't big enough to warrant that kind of investment.

ACTION POINT: Focus on doing things well and consistently over a long period of time.