Memo
To: Alex
From: Morgan Baker
CC: Jimmy Lanigan
Date: November 17, 2008
Re: Newell’s current situation
Recently, the United States based basic home and hardware product company Newell acquired Calphalon, a manufacturer of anodized aluminum cookware and Rubbermaid, a manufacturer of plastic consumer and commercial products. These acquisitions were deemed necessary by CEO John McDonough. Calphalon will give Newell the ability to enter the department and specialty store markets as well as help Newell’s cookware product line reach the top of the market. Rubbermaid allows Newell greater presence globally and increases brand name. Below you will find information about the Newell Company that will help you better understand the current position and the direction to take in the future.
Corporate Level Strategy
The Newell Corporate Level Strategy started as a product line strategy where Newell sold their products of drapery hardware to all channels, but the product lines lacked differentiation. In 1966, Newell bought a small window-shade manufacturer in attempts to conquer the problem of differentiation. It was not until Dan Ferguson met Stanford Professor Bob Katz and spoke about differentiation strategies that Newell really began to develop a “build on what we do best” philosophy. After this discussion, Ferguson realized that Newell’s competitive advantage was the knowledge of how to make a high-volume/low-cost product and relate to and sell to the large mass retailer. In 1967, Ferguson identified a new strategy for Newell, which focused a great deal on how to make Newell a better company both at the time the strategy was written as well as in the future.
The Package Deal was introduced by Ferguson as a new corporate strategy for Newell, based on their current monetary situation of approximately 10 million dollars, no long term debt, and earnings which were substantial and growing. He focused on what could be accomplished in the future based on the economic statistics of Newell in 1967.
- Create a package of lines going to large retailers
o Increases marketing impact more than individual lines
o Increases economic impact on the financial community
o Increases growth through performance and marketing leverage
This new strategy worked well for Newell because it addressed future expectations from the company. In order to become a more global company it is necessary for Newell to increase market impact which will, in effect, increase exposure to the global market. By sending a package of lines to large retailers their brand name will be enhanced as well because of an increase in products in the stores both domestically and internationally. It also exhibits that Newell is a company that will continue to work hard for customers in order to maintain their high customer approval rating. Newell’s goal to enter the department and specialty stores will also be met because of the increase in economic impact. As the economic stability of Newell and the products the company provides are realized, Bloomingdales, Dillard’s, Macy’s, and other specialty stores will become more interested in the company and become more likely to carry the Newell brand.
After Newell decided to go public in 1972, Ferguson began adding new products by acquisitions. In the next 20 years, Newell obtained more than 30 major businesses. Because of the new acquisitions it was necessary to reorganize the company structure towards a strategy of consolidation and centralization in order to achieve efficiencies. They moved from a functional to a divisional organization and moved away from a single sales force to sell all of its products. When they reorganized, each division was individually responsible for manufacturing and marking, but it was still centrally controlled by corporate-run administrative, legal, and treasure systems. This system became known as “Newellization,” and each newly acquired company went through the process.
Value Added to Businesses in Newell’s Portfolio
This section focuses on Newell’s ability to enhance the companies in their portfolio. It is necessary for Newell to continuously work with the various acquired companies in order to maintain the level of quality the company wants their brand to portray to customers.
“The whole is greater than the sum of the parts,” is important to Newell because it explains the Newell philosophy of “Newellization.” It is necessary for divisions to adhere to a specific and disciplined strategy with permission to develop, but not to expand its core products. This, essentially, allows the brand to be sold to customers and not the product, which increases customer loyalty because the brand is known and individual products are not lost to competitors.
“Newellization” normally takes place in less than 18 months after the acquisition of a new business. It is essentially when the acquired company is taught the systems and processes of Newell. This creates camaraderie between all entities of Newell so that the company, as a whole, is more efficient in all aspect of the business. It also enables Newell to become a market leader in nearly all divisions due to the ability to work together in all sectors of all businesses because all top management is taught the same basic principles.
Competitive Advantage is enhanced by Newell because of their “good,” “better,” “best” separation of products. This gives the customer’s of different financial backgrounds the ability to purchase similar products, but within range of their monetary means. It also protects Newell brands from competitors due to the increased amount of shelf spaced used in the store. By following this philosophy, Newell becomes a strong player in each category it competes in because of greater brand presence.
Newell focuses on making sure that all acquisitions, consolidations, and integrations reach economies of scale across a broad range of price points in various product offerings. Newell’s competition is maintained and orderly due to the protection from new entrants at low and high price points, which is also known as “achieving critical mass.” This enhances Newell’s competitive advantage because it requires high competition from other companies to enter the market and to gain an advantage over the Newell brand.
Another competitive advantage Newell maintained was their 2%-30-net-45 payment agreements. These were non-negotiable which Newell executives said was a matter of discipline. By requiring these inflexible payment agreements it defended Newell against the protestations of smaller retailers such as hardware stores. This gave Newell the ability to price products consistently for all customers, from the local hardware store to mass retailers such as Home Depot.
Newell’s corporate office added value to the company’s in their portfolio in that they focused on a centralized administration. Acquisitions and all the basic functions of the business were in the hands of the corporate level administration so that the divisions would not be distracted from their main goal of generating profit. The top financial responsibilities were divided between the Vice President of Finance and the Senior Vice President. Both of these vice presidents reported directly to the company president, who answered to the CEO. This created an efficient management team because it eliminated a lot of movement and discussion between divisions. The CEO also maintained close relations with the top management at major customer offices to decrease the amount of time to reach a decision if a problem arose.
Newell also focused on good communication within the company and had numerous meetings throughout the year in order for leadership roles to remain informed about other aspects of the company. Division leaders convened several times a year for presidents’ meetings as well as the ability for regular encounters at trade shows throughout the year. Annual management meetings were important as well because they brought together all members of management to discuss the company as well as the ability for a two-day conference within each group which featured presentations and programs aimed at transferring learning. Monthly financial reviews were also important to maintain Newell’s profit focus.
Other forms of communication were bracket meetings and the monthly collection of operating figures. Bracket meetings were implemented if there were too many variances within the budget. They were not meant to be pleasant for the division presidents, but directed at identifying and solving problems within the budget. It was necessary to hold bracket meetings if the flexed cost numbers showed an unfavorable variance even if sales were above budget. Operating figures were collected monthly because of Newell’s disciplined approach derived from senior management’s convictions that “if each piece is done right, the whole will look after itself.” Because of the strictness of budgets it was necessary for corporate management to meet with divisional managers regularly throughout the year, with two meetings devoted to budget setting, and at least two focusing on strategic planning.
Finally, the corporate office added value to Newell’s businesses in their portfolio because of the high demand for positions. Any time that there is a high demand for positions within a company, something has to be working well. 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. All salaries for managers were equal to the industry average, and bonuses could range from 33% for the most junior manager of a division’s 20-person executive team, to 100% for division presidents. Obviously, Newell had a good payment plan for employees which greatly increased the interest to work for the company. Although, the interviewing process was rigorous, once a potential employee was hired they attended a two-day training program at the so-called “Newell University.” There were also frequent opportunities for transfers and promotions in less than 10 years and all job openings were publicized within the company. This kept the Newell knowledge within the company and the ability to acquire informed top management was a much easier process.
Challenges in the late 1990s
One of the main challenges in the late 1990s was the increase in customer buying power. By 1997, three mass retailer chains controlled 80% of the discount retailer market. This allowed retailers to obtain significant leverage over price and scheduling. It was necessary for manufacturers, such as Newell, to increase efficiencies in their warehouse and distribution systems. Newell decided it was time to improve technology and introduced the Electronic Data Interchange (EDI), which was the company’s electronic management system for transmitting purchase orders, invoices, and payments to and from its retail partners. The divisions were able to use the data obtained from the EDI to schedule their own production and deliveries which allowed retailers to maintain minimal stock levels in line with actual sales. Technology eventually increased even more so merchandisers could provide Newell with nightly point-of-sale data on every product sold the previous day. This data aided reducing inventory other than at the store level and eventually became known as “cross docking.”
Another challenge in the 1990s was the acquisitions of Calphalon and Rubbermaid. These were both major stepping stones for Newell in that both companies will bring greater brand recognition to the Newell brand. It was a challenge because of the speed in which the companies were acquired and the short amount of time between the two acquisitions. At the time, Calphalon was in a different market, and Newell wanted to enter the department and specialty store competition. This required changes within the Newell Company because of a different view of products and competition. Rubbermaid was a difficult acquisition because of the vastness of the company in general. Some industry observers worried that this target would be too large to be “Newellized.” Both acquisitions will be discussed further in the next section.
Calphalon Acquisition
The Calphalon acquisition was a good decision because it accomplished what Newell was searching for. Before the opportunity came to acquire Calphalon, Newell was looking for a company that would give them the needed connection to enter into department and specialty stores, while maintaining WearEver as Newell’s best, mass merchandiser brand. By acquiring Calphalon, Newell entered the department and specialty store market and decided to honor the Calphalon contract with Target which was to display specially designed fixtures exclusive to Caphalon, “Kitchen Essentials by Calphalon.” Other than introducing Calphalon to Target, Newell decided to keep Calphalon lines in department and specialty stores. This enabled WearEver, to remain the number one mass merchandiser brand within the Newell lines.
Calphalon fits well with the Newell company strategy in that they have good customer connections. The company president of Calphalon said, “Upper-end cookware is bough on emotion. People who are passionate about great food are just as passionate about their cookware.” This comment makes it known to other companies such as Newell that Calphalon holds quality as a main ingredient in customer satisfaction, which complies with Newell’s strategy to maintain high customer loyalty. Calphalon also has a range of higher end products which coincides with Newell’s price point strategy to deter competitors. By having products at a range of prices it makes it more difficult for other companies to enter the market and compete. Calphalon sells their product to retailers that will add value to the company which also increases brand equity, another key component in Newell’s strategy. Finally, Calphalon sells the brand and not the product. It is important to Calphalon to offer a “store within a store.” Newell promoted the name more than the individual products, because they focus on “the whole is greater than the sum of the parts.” Both companies look for the ability to make their brand name stronger and not just individual pieces of the pie, it is important for the whole pie to be full of good ideas to make a company a better competitor.
I would recommend that Newell use Calphalon’s strategy of “store within a store” with other acquisitions and divisions. It might be a good idea to introduce this idea with WearEver in order to better portray this brand as a top brand within the mass merchandiser stores. By introducing chef endorsements, cooking classes, and book signings to the WearEver brand, people that cannot afford higher priced brands such as Calphalon, will still have the sense that they are buying a better product than others sold at mass merchandise stores. It would also be beneficial to Newell to enter into other department and specialty stores with other products, possibly a better quality of WearEver products. This will allow Newell products to reach more demographics and increase brand name.