Does Newell Have a Successful Corporate-Level Strategy? Does the Company Add Value to the Businesses Within Its Portfolio?

Your name:

Taemin Im

Does Newell have a successful corporate-level strategy? Does the company add value to the businesses within its portfolio?

Newell has an extremely successful corporate-level strategy which ultimately turns a failing bankrupt business around 180 degrees. Newell wanted to increase their market power of primary customers and volume retailers through strategic acquisitions and buying stronger brands. Newell’s corporate strategy was very focused as they knew exactly what they needed to improve such as their shelf space and brands. The corporate executives also had very distinct functions with clear separation in roles and duties. Their culture of great management incentives drove the company to perform at all time highs since that’s how they were compensated. Their primary objective was to grow the company by increasing profits by optimizing operations of newly acquired companies.

Their strategy, which is set in motion by CEO John McDonough, looks to add value to Newell’s broad range of basic home and hardware products and their suppler power, They specifically targeted businesses to acquire following strict criteria based on their performance and viability to the industry. An acquisition of a company will turn that newly merged company’s focus straight to Newell’s core product and adjust all of their operations and systems to align with Newell’s. Newell was very attracted to companies that manufactured top ranked brand name products because these products “would have the requisite amount of shelf space to be important to the retailer,” (“Newell Company: Corporate Strategy” Cynthia A. Montgomery).

Newell adds great value to the businesses within its portfolio by implementing their “Newellization” process. This aggressive process began immediately after the acquisition is finalized- which at times could start anywhere before 18 months to 6 months. During this “Newellization” period, the new acquired company gets revamped and realigned to fit Newell’s business. They add value by implementing 3 critical categories of standard Newell systems into the new company:

• Integrated financial system
• Sales and order processing system
• Flexible manufacturing system

By implementing these three categories with strict discipline, Newell is able to add value to the newly acquired company. These proven tactics ultimately streamline their operations to help cut high costs and increase profits.

In this context, does the acquisition of Calphalon make sense? Rubbermaid?

The acquisition of Calphalon fit right into Newell’s world. Calphalon has been looking for a partnership to help build their own brand equity. They also had a high administrative costs at around 25% due to their pull strategy. This made sense for Newell since their 3 categories of standard Newell systems could improve all of Calphalon’s challenges. They had a big issues with their competitor Meyer because they couldn’t compete with their off shore manufacturing supported prices. Fortunately for Calphalon, Newell had incredible strength in shipping. This acquisition also followed, the company president and COO, Tom Ferguson’s statement of “2+2 do not equal 4. If we do this right, we get more than 4,” because they also got a great relationship with Target.

Rubbermaid showed much promise as a potential addition to Newell. They offered big manufacturing of plastic products for retail which included home storage and commercial products. Their CEO, Stanley Gault, brought over some great discipline and methods from G.E. was soon known for their brand equity and product innovation. This could have potentially helped immensely with their previous acquisition of Calphalon. But these successes of Rubbermaid was also what didn’t make sense to acquire Rubbermaid. Newell’s criteria of finding potential acquisitions consisted of a company that needed help in the category of increasing profits, and implementing Newell’s strict disciplines. Rubbermaid seemed to have their own systems that optimized those areas. This acquisition was Newell’s largest ever made at $5 billion. To “Newellize” a company of this size that does not lack much discipline when coming to profits and operations was just too big. Rather than jumping on the opportunity to acquire Rubbermaid, a more disciplined action would have prevented Newell’s stock price from falling so sharply. But in the long run, if they can align the companies resources together and further streamline their operations to manage multiple small companies, Newell could experience great growth with this acquisition.