HBS Case; Newell Company Corporate Strategy

‘Statement of Newell Companies 1967’

‘’Basic business is manufacturing and distributing volume merchandise lines to the volume
merchandisers. A package of lines carries more marketing impact than each line separately. Newell
will build its growth through performance and the marketing leverage of the package.’’

A. Newell runs a strategy of expansion strongly based on acquisitions.

Targeted companies were evaluated to their potential to be integrated into Newell’s,

considering;
 Producing in basic home and hardware domain (broad range)
 Companies which had low tech, non fashionable, non perishable products that are year in
and year out in the shelves.
 The products were ranked #1 or #2 in their product category and imperative for retailers to
have in their shops and thus allocating these products good shelve space
 It’s (often) under-performance with operating margins of less than 10%.
 Can the products be sold through the same channels as Newell’s; being large discount
retailers such as the big three?
 Can the company be integrated into Newell’s organisational structure?
 Can the profit optimization methods of Newell be applied onto the acquired company?
 Is the product added improving the product range of the Newell?

After acquisition theses companies went through a process known as “Newellization”, a
process of streamlining, focusing on operational efficiency and profitability, with the ultimate
goal of turning profit margin above 15%. (To be achieved in a period less than 18 months) with
the introduction of 3 Newell systems standards;
1. Integrated financial system
2. Sales and ordering processing system
3. Flexible manufacturing system

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 Comparable dynamics as illustrated in the Mc Kinsey restructuring pentagon

Another stringent condition; acquired businesses were obliged to focus on their core product line
(strongly delimited by HQ) but aligned with the Newell’s systems and processes

B. Newell – from a FUNCTIONAL to a DIVISIONAL CORPORATION.

Original structure was functional based on consolidation and centralization in order to achieve
efficiencies including one single sales force. This was not the optimum solution to sell a variety
of different products and Newell divided in individually empowered divisions running design,
manufacturing, marketing and sales. The divisions were monitored by:
The triangle of corporate strategy of Newell

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  Strong alignment of Newell operations with large discount retailers, except for the ‘one-
contact-shopping’ approach, replaced by corporate CRM promoting excellence in customer
service. (In 1970 the industry average was 80% of line fill and on-time delivery. At the same period
Newell was able to target 95% of these measures and soon drove them up to 100%. This service level
allowed Newell’s suppliers to have a higher Willingness To Pay when compared to competitors.)
 Retailers are prepared to pay a 5-10% premium for this excellent service (regained because
of less disruptions in supply)

Resources
 Efficient high volume manufacturing
 Global Reach
 Superior service (on time delivery), reliable supplier adapted to the just in time model “the
no problem supplier”
 Leveraging on excellent relationship with discount retailers
 Financial resources (net worth of USD 10 million)
 Solid reputation, subpar performance (intangible resource)
 Acquisition helped enhance Newell brand equity
 Dan Ferguson MBA holder from Standford (human resource)
 EDI; effective information exchange with large discount retailers
 Program merchandising
 Products exclusively chosen for distribution to large discount retailers
 Excellent HR due to attractive career paths and compensation plans
Businesses
 Low tech, non fashionable product
 Any product that large discount retailers sell
Organization
1. Vision

‘Statement of Newell Companies 1967’

Basic business is manufacturing and distributing volume merchandise lines to the volume
merchandisers. A package of lines carries more marketing impact than each line separately.
Newell will build its growth through performance and the marketing leverage of the package.

2. Coordination
○ divisional structure; (analysis later in text)
○ empowerment of the 21 divisions that are responsible for their own P/L
○ support and monitoring from experienced senior managers in the HQ (holders of
Newell’s image, experience)
○ cross hiring between the various divisions
○ centralized elements imperative to Newell reputation of excellent suppliers (CRM,
data processing and exchange, internal and external finance, control and executive
nominations)

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 3. control
○ support to determine strategy
○ senior management involved through monthly review meeting (thus also adding
value through experience and broad vision)
○ corrections made through ‘bracket meetings’
○ 30 operating variables critical to success
○ Comparable operations => system applicable to all divisions (SG&A < 15%)
○ Uniform compensations making HR transfers easier + rewarding for excellence
(32,5% ROA => bonus of 100% basic compensation)
○ Strict financial discipline; payment term non negotiable 2%,30-45

4. Corporate office
○ 375 employees;
○ Limited group of highly experienced senior managers
○ Large team in charge of data management systems
○ Corporate culture from top to bottom of operating like ‘Newell’
○ Top light organization cost only 2% of sales

Divisional structure Newell’s divisional structure

Advantages Coordination and authority to
appropriate level of rapid response
Divisions unique environment hence
unique strategic orientation
Top management’s focus on strategic Growth through acquisitions
orientation
Performance accountability
Challenges Division’s manager’s line of authority Cross hiring and clear organisational chart
Policy inconsistencies between divisions Monthly meetings with top management
+ strong delimitation of product range
from head office
Corporate resource allocation in terms of Division responsible for own P/L + strict
resources and cost financial control of comparable divisions

C. FURTHER DIVERSIFICATION.

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To continue to grow the overall organisation, Dan Ferguson wanted to further diversify in specific
unrelated areas such as writing instruments to ensure that overall growth that company was seeking
and become “big enough to get attention”.
Acquisition of Calphalon
Calphalon offered more upper end product line being targeted to the special retailer as oppose to
the mass retailer. This was not aligned with the Newell’s usual strategy of offering basic products to
mass retailer. Therefore a question needs to be considered whether the Calphalon product line can
be integrated into Newell’s corporation smoothly. Newell’s strategy is to reach out to these new
markets in order to gain volume and independence against large retailers. This takes into account
that the growth rate is becoming more challenging to achieve.
However, the acquisition of Calphalon does open up additional distribution channels that Newell
could take advantage of.
Attempts to merger with Rubbermaid appeared not possible due to divergences in vision.
Newell preferred to wait for acquisition to ensure it could integrate Rubbermaid like it did with
previous acquisitions. It would bring this company that produces great products and has strong
brand equity with end-users, but a disastrous reputation as a supplier, to level of service excellence
Newell’s client are expecting.

CONCLUSION
Corporate strategy
1. Based on strong vision, patiently and actively implemented since decades. Ability to move
fast and to be patient (see Rubbermaid acquisition)

2. System of INTERDEPENDANTS parts. Their mutual reinforcement makes the elements to the
most valuable inside the Newell organisation (higher value as for any other corporation)

3. consistent and capitalizes on outside opportunities; Newell to adapt to discount retailers /

‘category killers’/ global supply

4. benefits of corporate membership are greater than the cost; the Newell’s resources are the
unifying thread inside the corporation