Newell Corporate Strategy
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Does Newell have a successful corporate-level strategy? Does the company add value to the businesses within its portfolio?
Newell Company’s strategy is to acquire different companies that will help them grow their business in the basic home and hardware products industry before 1994 and started diversifying into unrelated field such as writing instruments and window treatments to grow the company as a whole. These companies are mostly underperforming and suffer from high cost thus Newell would put these companies through a process of streamlining, focusing on operational efficiency and profitability, and this process know as “Newellization” would align these companies to Newell’s own cost structure and processes in less than 18 months. Newell also acquire small businesses to round out their existing product lines and consolidate industry capacity.
This two-pronged strategy proved to be quite successful as Newell acquired more than 40 major businesses till 1998. The company acquiring strategy allowed them to add business that are similar in nature to its portfolio and thus consolidate industry capacity. Such a move allows them to enjoy economies of scale but offering differentiated products of the same category to suit different customer as a result. “Newellization” includes transferring higher technology from Newell to these companies that had been acquired and thus they are able to supply goods in faster time while quality of the products is not being compromised. These companies do not have such system and process and also do not have bargaining power with companies and thus higher cost is incurred by them and the customers. Newell also restructures the management in the companies by removing executives they feel who are too comfortable in their positions and also ensure that the companies do not over-employ people or under-employ people. Product lines making losses will be removed while stores that would not add value to the company are closed.
Newell also ensures that these businesses live up to Newell’s standard in the industry, which is high service level and fast delivery. After acquiring, Newell would get the service level of each business to their standards as fast as possible to make sure that these businesses do not damage its reputation. Thus association of brand name to Newell highly enhanced the individual companies inside Newell’s portfolio to be of good service and fast distribution. Other than these factors, the acquisition of different companies might bring in different skills and synergies to complementing goods such as production knowledge and complementary assets. Companies that produce complementary products are able to know what exactly to produce that would suit their customers, while companies producing differentiated products of the same category would be able to learn from each other to produce better products for each customer segment. Companies of similar nature are also consolidated and the plants upgraded to increase manufacturing efficiency which will benefit these companies in the cost aspect.
Newell made two interesting acquisitions in 1998: Calphalon and Rubbermaid. It faces challenges in sustaining its success (e.g., growth and/or profitability). Further, Newell is not sure about its future positioning. What should they do?
Since the beginning of the 1970s, the nature of the U.S. retail industry changed when large-scale mass retailers had considerable power over their suppliers, which 3 main chains controlled 70% of the discount retailer market and increased to 80% by 1997. These retailers had considerable more power than departmental stores, being able to influence and dictate the kind and quantity or merchandise shipped to the stores. These retailers such as Wal-Mart had considerable leverage over price and scheduling while threatening