STRATEGIC MANAGEMENT

NEWELL COMPANY: CORPORATE STRATEGY

GROUP NUMBER: 12

Sri Harsha 0336/56

Mahesh Ede 0341/56
Prem Gajula 0345/56
Hareen Sai 0363/56
Sandeep 0365/56
Nikhil KPVS 0367/56
NEWELL COMPANY :
CORPORATE STRATEGY
 Two particularly important strategic steps among many other acquisitions. CEO John
McDonough viewed these acquisitions as “ Course Correction”
 Calphalon : A privately held manufacturer of anodized aluminium cookware. It broadened
Newell’s access to the department and speciality store markets
 Rubbermaid : A manufacturer of plastic consumer and commercial products. It had a greater
global presence and a broader product offering than Newell alone
CASE BACKGROUND –ROOTS
OF STRATEGY
 In 1902 Edgar A. Newell bought the assets of a bankrupt manufacturer of brass curtain rods.

 Newell began by selling its product to small hardware stores, industrial builders and speciality
retailers
 In 1921, Leonard ferguson began his career at Newell achieving the status of full partner and owner
in 1937. Later his son Daniel joined the company and became CEO in 1965
 Resonated by the Standford’s professor Bob Katz’s speech on strategy Ferguson began to develop a
“build on what we do best” philosophy
 In July 1976, Ferguson wrote out his strategy for Newell indetifying its focus as the market for
hardware and do-it-yourself (DIY) products to volume merchandisers
 In 1969, the company made its first non-drapery hardware acquisition with Mirra-Cote bath
hardware.
 This added a new product line and opened up a relationship with Zayre
ROOTS OF STRATEGY
 In 1972, Newell went public diluting what remained of the Newell family ownership.
 The company thrived by following a disciplined and aggressive two-pronged strategy, acquiring more
than 30 major businesses in the next 20 years.
 It acquired companies that manufactured low-technology, nonseasonal, noncyclical, non fashionable
products that were typically underperforming and had operating margins less than 10%.
 After acquisition, the companies were put through a definite process known as “Newelization”.
 Over time, Newell underwent a major organizational transformation. The company was organized
into separate divisions from the system of centralized marketing
 By 1997, Newell had revenues of $3.23 bn, with variety of consumer products primarily to mass
merchandisers such as Wal-Mart, office superstores and home centres
 Through 1997 Newell had a 10 year average return to investors of 21% versus an 18% yearly
average for the S&P 500.
GROWTH BY ACQUISITION
 CEO John McDonough responsible for strategic direction on company and corporate business
development
 Redirect acquired business to focus on their core product and align them with Newell’s
systems and Processes
 Don Ferguson described the process of integrating new companies as “2+2 do not equal 4, If
we do this right, we get more than 4”
 Newly acquired companies goes through process called as Newellization
NEWELLIZATION
 Under Leadership of a New President and Controller
 Three New systems were introduced in the company
 Integrated Financial System
 A Sales and order processing system
 A Flexible Manufacturing System

 Example – Anchor Hocking

 They had sales of 757million with profit margin 0f 0.5% compared to Newell's 350 million sales with
profit margin of 11%
 Reduced employees to 9000 from 10400 and slashed 3 factories and 25 retail stores
 Eliminated 40 % glass products by year end and saved 32.4 million in costs
 Additional 12 million was saved by centralizing all functions
GROWTH STRATEGY
 Companies with products which have large shelf space are preferred for acquisition
 Also acquired small business to round out its existing product and consolidate industry
capacity with goal of increasing efficiency instead of power pricing
 Even divested some companies with healthy profit margins if they were ill suited to
company’s major focus
 Example – Wm.E.Wright company manufacturer of ribbons and home sewing products had solid sales
and profit performance
 But market for those products shifted to small independent retailers from mass retailers
 So Newell sold the company to focus on businesses that are more important to mass retail customer

 Globalization : Company entered foreign markets with aim of becoming a global supplier to
the US retailers like Wal-Mart also became global competitors.
SERVING THE MASS
RETAILERS
 By 1992 three mass retailers controlled 70% of discount retailer market, by 1997 the same
three controlled 80%
 Walmart, with $118 billion in sales, was able to dictate the kind of quality of merchandise
shipped to its stores
 It had leverage over pricing, scheduling, threating to introduce a competitor to some stores as
a way of pressurising suppliers
 Mass retailers relied on information technology as the foundation of their business
 This allowed them to provide suppliers with nightly point of sale data on every product sold
the previous day for inventory management, manufacturing and shipping scheduling.
 INVESTMENT IN IT
 Newell invested heavily in IT to improve operations by leveraging data and insights available from
mass retailers
 It started adopting electronic management system for purchasing orders, invoices and payments to
and from its retail partners across the country
 Newell’s top 20 customers placed 90% of their orders online
 By 1998 some mass retailers used “cross docking” system to eliminate inventory other than store
level
 SUPERIOR PRODUCT QUALITY AND SERVICE
 If suppliers failed to deliver shipment on time, there was no second chance. The trucks to the stores
were gone. Suppliers had to pay full margin for the lost sales.
 To address these pressures Newell forced each division on each focus on customer service and
profit performance.
 Newell focused to keep its customers at 95% line-fill and 95% on time delivery. As industry
standards rose Newell reached almost 100%.
 Due to this consistency of high standards in product quality and service, Newell’s pricing was 5%
to 10% premium.
 To maintain this service standards, Newell transformed service level of its new acquisitions as
quickly as possible there by willing to carry larger inventories immediately following its
acquisitions.
The Corporate Role
 Newell had adopted to develop its product line through key acquisitions rather than internal growth.
 Acquisitions are taken care at the corporate level so that the divisions are not diverted from their
core function of generating profit.
 Potential target firms undergo an intense screening process.
 They bring up acquired companies by developing them to become cost efficient through operational
strategies and creating profits within a period of 18months.
 Corporate tightly controls the finances, yet it allows brand and division president autonomy to guide
the performance of the business.
 The company attaches great importance to customer relations frequently inviting buyers for plant
visits.
The Corporate Role
 Newell focused on good communication within the company
 Numerous meetings throughout the year in order for leadership roles to remain informed about
other aspects of the company
 Salary was based on a uniform system across all divisions, which rewarded individuals on the basis
of their positions and the size of their divisions
 The interviewing process was rigorous, and the new employee attended a two-day training program
at the “Newell University” which stressed on product focus and profit-orientation
 There were also frequent opportunities for transfers, and promotions and all job openings were
publicized within the company keeping the knowledge inside the company 
 The ability to acquire informed top management was a much easier process
BUSINESSES:

 Newell’s businesses used a program-selling approach

 It maintained different brands within different categories
 By 1998, Newell emerged as the market leader in almost all the categories
 Newell achieved economies of scale in numerous product offerings through
acquisitions, consolidation and integration
 “Achieving critical mass”
CALPHALON
 Calphalon was a privately held manufacturer of aluminium cookware and related products
 Calphalon followed a pull strategy and was evident as their SG&A expense was averaging
at 25%
 Chef endorsements, book signings and cooking classes were important for Calphalon sales
 All-Clad & Meyer were their two biggest competitors
 Newell acquired Calphalon in 1998 and kept the Calphalon product lines in department &
speciality stores
 With the acquisition Newell believed it could bring discipline into many aspects of
Calphalon’s business
 In addition, Newell thought of seeking expertise from Calphalon on pull strategies and
building strong connections
RUBBERMAID
 Founded in 1930, Rubbermaid is primarily a manufacturer of plastic products for the retail
market place with main product lines like home storage and commercial products and
infant/juvenile products through its Little Tikes, Century and Graco subsidiaries
 Rubbermaid was best known for it's success during the period from 1980 to 1991 when Stanley
Gault was the CEO and brought the discipline's and methods of his previous company G.E to
Rubbermaid. It’s average annual profits increased by 14% and share prices by more than 25%
 It was known for it's brand equity and product innovation. 33% of the expected revenue was
from products introduced in the previous 5 years and 1993 according to a survey by Fortune,
Rubbermaid was the most admired company in America
 Later in 1992 a long time employee of Rubbermaid Wolfgang Schmitt became the CEO and
share price never reached it's high of $38. Although revenue grew from $1.8 billon in 1992 to
$2.4 billion in 1997, net earnings fell from $164 million to $143 million
RUBBERMAID
 Even though Schmitt promoted Rubbermaid's team culture and product innovation, there were
serious problems with management and operations. In 1995 when resin prices rose it could not
convert these to higher prices to retailers as retailers were resistant to price increases, smaller,
more efficient competitors took over the market share
 During a major restructuring in 1998 Rubbermaid has done cost cuttings and wanted to see
high volume growth to push up profits. But it could not provide the service required
 McDonough felt that in the long run cost savings and synergy between the companies would
make it a good deal for Newell and also that Rubbermaid's brand names would enhance
Newell's opportunities for globalization and internal growth
THANK YOU!