MARKET STRATEGY

NEWELL COMPANY
CASE STUDY ANALYSIS

Submitted By:

Ammarah Nasrullah
Mehreen Omer
M. Ali Aman
Omer Saeed Khan
Osama Ahmed Khan
Shanza Fatima Baig
Raphael Atif
Waleed Akbar

Submitted To:
Ms. Maryam Wazirzada

Dated:
st
1 February 2013
Does Newell have a successful corporate-level strategy? Does the company add value to the
businesses within its portfolio?

The company did add a lot of value to the businesses within its portfolio, which essentially was a
translation of a successful strategy at the corporate level as it acquired many under-performing
companies along the years. These companies ranked very high on market effectiveness and
performance but performed very poorly financially. The companies that manufactured brand-
name staple products ranked first and second in terms of market share. This was a green signal
for Newell to acquire these companies as it thought that they were significantly undervalued due
to poor management and can thus be rejuvenated with the better support structure that Newell
has and ultimately turn profitable for the parent company.

It streamlined the businesses of the acquired companies through its IT-based sales and flexible
manufacturing system. In essence it attempted to create synergies by exploiting the already
existent operational expertise and creating new operational efficiencies. Globalization played an
important role here for Newell as the combination of Rotring a German manufacturer of
writing instruments and Panex a cookware manufacturer in Brazil, in combination with
Rubbermaid accounted for 25% of the total sales for Newell. Newell manufactures low-cost but
high-volume staple products like home furnishings and house-wares and sells these to large
retailers. In other words, it doesnt savor the smaller retailers as much which implies that it
primarily focuses its distribution and marketing efforts on a relatively few key accounts. It has an
intricate system of knowledge-transfer and sharing within the organization with job rotation for
managers along with comprehensive training programs and regular management meetings. It also
leverages economies of scope by exploiting relationships with discount retailers to get the shelf-
space it needs and negotiates the terms and conditions for products belonging to other
subsidiaries in its portfolio.

Because Newell re-designed its organizational structures according to the need of the hour, it set
forth a dynamic process of development within the company. It emphasized profit over sales, as
sales could be high but with little or no effect on the bottom-line because the processes of
production and marketing etc. were not efficient enough. Furthermore, Newell made the cash
collection procedures of the acquired companies flexible by eliminating the 90-day terms
agreements.
What are the companys distinctive resources?

Developing as a company, Newell took a number of steps in order to reduce its competitiveness
and improve its position in the market by capitalizing on internal strengths. This was done
through acquiring some new companies; Rubbermaid and Calphalon.

Newell began the process of assimilating Rubbermaids operations through a process called
Newllization. The company expected that the merger would create synergy through leveraging
the Newell Rubbermaid brands. The Newellization process was based on the prospective
acquisition target of having a number of attributes that correlate with Newells requirements of
the target organization.

Newells progress as a company made it more structured; it changed its structure from a
functional approach to divisional management style. This was a major decision to consider the
number of new product categories that were added in the production line. It was even more
important since the company had little differentiation between its products and those offered by
its competitors. As such, Newell has thrived despite being armed with only a few specific
resources.

In reality, Newells success was attributed to its strength in three general capabilities. First and
foremost, it did not lose focus on its goal of keeping a solid reputation with national chains. It
was able to deliver on this target because of its second strength that was its corporate structure.
Finally, it possessed technology, in the form of EDI, which is more than adequate for the needs
of its retailers.

Does the acquisition of Calphalon make sense?

The Acquisition of Calphalon proved quite beneficial for Newel. This helped Newel to enter non
mass merchandise market. This also helped Newel to sell premium product with strong brand
recognition without cannibalizing its existing cookware. Besides this, Newel products are
utilitarian in nature while Calphalon products are high end products with emotional appeal. This
would help Newel to enter the high end market. Newel can leverage the existing strengths of
Caphalon and can differentiate its product portfolio by using the skilled sales force, by giving
product demonstrations and training.

The acquisition would also help to reduce the Calphalon selling, general and administrative
expense which is 25% per year. The existing strength of Calphalon of having connection with
consumers and retailers could be used by Newel to establish its image as a retail brand.
Calphalon had 250 selling specialists who usually covered the major accounts. They were
responsible for managing the events and for giving in store cooking demonstrations for training
the personnel. Newel kept the Calphalon product in the department and specialty stores in order
to build its presence in the channel because the Kitchen essentials introduced by Calphalon were
the only hard-anodized cookware displayed in specially designed fixtures and had support from
Target and prominent positioning in material for Target gift registry program.

Besides this Newell management can bring discipline to Calphalon business in areas of financial,
organization and manufacturing and Calphalon can share its expertise with Newel in developing
pull strategies and building strong connection with distribution channels and customers.

However, there might be some negative consequences for Calphalon. Because Newel keeps the
brand name of target firm but discard the existing people and processes, which is of no use to
Newel because instead of using the skilled workforce and well planned processes developed by
Calphalon, Newel discards them. Also, Calphalon has build its brand equity by the effort of its
sales force and by educating the retailers and end users but Newel might destroy the premium
position of Calphalon and break the barrier of entry for premium competitors at high end
retailers

Was the Rubbermaid acquisition a good move for Newell?

Rubbermaid acquisition was a good move because it helped Newel to integrate a new acquisition
in to a new product line with in a short lead time. Rubbermaid manufactures plastic products and
its main product line includes commercial and infant products which it sells through its
subsidiaries. Rubbermaid became known for its brand equity and product innovation and its
revenues also increased when the Gault brought GE disciplines and methods to Rubbermaid.
The main aim behind acquiring Rubbermaid was to gain significant shelf space at mass retailers.
This acquisition will help Newel to place its products at the front of the aisles and to increase its
sales. Despite the fact that Rubbermaid was inefficient in its operations, however Newel can help
Rubbermaid by leveraging its operational and financial system and can use the existing brand to
improve Rubbermaid deteriorating position. The rising cost of resin accounted for 73% as a
percentage of sales in 2007 along with logistics and service problems which have reduced
Rubbermaid profits as depicted by Exhibit 3. For 1992-1994 Rubbermaids performance in terms
of COGS (67%) and SG&A (17%) was in line with Newel COGS and SG&A during the same
period 67.5% and 15.5%. By controlling the Rubbermaids cost Newel could make 9 % to 11%
net income as a percentage of sales. Moreover, acquiring Rubbermaid will value Newel over the
$ 10 billion market capitalization. This market capitalization would further help to overcome the
increasing market power of retailers as they try to reduce Newel margins.

The Newel two pronged strategy fits well with that of Rubbermaid. However Newell would need
to overcome the market premium by future savings as Rubbermaid at time of acquisition was
over valued at $ 5 billion. Besides this, Rubbermaid before acquisition had $ 2.49 B in working
capital and $ 377 million total debt making it an attractive acquisition as depicted by (Exhibit 5).
This acquisition helped Newel to enhance its opportunities for internal growth and globalization
by leveraging the strengths of smaller companies.

Therefore whether acquisition of Rubbermaid will add value to Newel depends on the Newel
ability to integrate it in to the existing product line. Newel needs to devote a lot of time and
resources for training and managing Rubbermaid workforce therefore a trade off needs to be
done by Newel that whether to spend time on new acquisitions or on leveraging the Rubbermaid
existing strengths and making use of product development and innovation.
Conclusion

Through thoroughly analyzing the case it could be seen that Newell has adopted a new technique
to increase its efficiencies in its operations as well as add on to variety in its product line by
acquiring companies that could benefit its structure. The exhibits show that it has engaged in
acquiring a number of companies in the same industry and has expanded its operations. However
it needs to tactfully handle the varied setups of these companies, it needs to focus on adopting
their core competencies and avoid the internal issues they are facing for example in the case of
acquiring Rubbermaid.

It could also be seen that the change in their management style from functional to divisional has
been beneficial for the company. The use of synergies also proved as an effective method to
enhance the performance of the company. But the major decisions taken by Newell in terms of
acquisitions, structure change or synergies should add value to the business being its sole
concern.
Recommendations

As we have seen many examples around us and we have even studied the phenomena of how
people and process make and break a business; Newell also needs to understand this phenomena.
The case tells us that Newell after acquiring a business tweaks with people and processes, not
understanding that these two elements are the crucial components that have made the business
they are acquiring. Changing people and processes would turn the acquired business upside
down. What Newell should focus on is maintaining and creating synergies between the different
subsidiaries and acquired businesses to reap the most out of them. Newell should devise a
strategy that leverages on the strengths of the businesses it owns. The exhibits clearly show that
over time the ROA and ROI have been decreasing, the aggressive Newellization (take overs) are
the main reason behind these decreasing figures. Newell should at this point in time focus on
increasing ROA and ROI by better management of the business and creating synergies between
the businesses. Its time that Newell focused on a corporate name and let the brands operate with
their original names under the banner of the corporate name for a better brand recognition.
Though Newell has been able to diversify its business portfolio by acquiring businesses, however
these businesses are still exposed to industry specific risk as most of the businesses belong to the
same industry and if a major player/competitor comes with an aggressive strategy; it might cost
the Newell as a whole in terms of market share. We do not recommend Newell to go for a
conglomerate at this point in time but would advise them to follow this strategy in the future
once ROI and ROA are more stable.