Newell Company: Corporate Strategy, Essay Example

Newell: Success Throughout the Years

Newell is a successful company which merchandises a plethoraof brand-name products.A major reason for its success is due to its excellent customer service.  Newell started small, but increased its power by acquiring companies that manufactured “brand-name staple” products with high market share rankings.Newell enhances its business acquisitions by establishing a competitive advantage and providing a strong centralized administration.

Newell adds value to businesses it acquires

Newell adds value to the companies it acquires by taking their high-quality brand-names, assimilating them, and making the companies available to a mass of distributors.  “Newellization” or Newell’sassimilation process, is so successful that it can occur in less than six months.  Newell’s strong centralized administrationprovides companies with direction and organization, enabling more efficient communication and functioning. To ensure a strong centralized corporation, Newell has presidents’ meetings with division leaders several times a year.  Annual management meetings provide division leaders with the opportunity to discuss Newell’s progress and direction.The monthly financial reviews help Newell to maintain its profit focus.  Any variances within the budget are bracketed, and too many variances lead to a “bracket meeting” to identify and solve any financialproblems.  Operating figures are collected monthly to ensure that each division is functioning efficiently.

Acquired businesses are encouraged to pursue growth and development, but not to redefine themselves or expand their core products.  By having this policy, brands are sold to the customers as opposed to products.  Customer loyalty is increased because the brand is known and individual products are not lost to competitors.

Newell provides its acquisitions with discipline.  Customers must adhere to their original contracts, and cash discounts are not allowed.  Newell also prevents divisions from allowing customers to pay on 90-day terms; as a result, Newell saves on accounts receivable.

Newell inspires loyalty of its employees and generatesa desire become an employee, because of its good management and great rewards and bonus system.Bonusesrange from 33% for the most junior manager, to 100% for division presidents.  Newell also provides many opportunities for transfers and promotions within the company.

Newell provides competitive advantage by using a program-selling approach to their products, offering “good,” “better,” and “best” products on the same shelf so customers of different socioeconomic situations could purchase similar products. Newell is protected from competitors due to the increased amount of shelf space in stores.

Newell’s competitive advantages are satisfied by Barney’s VRIO framework

The VRIO framework measures a company’s competitive advantage by evaluating its value, rarity, ability to be imitated, and organization. Value was established from Newell’s beginning by distributing brass curtain rods in 1902, at a time when Americans were moving into the suburbs and wanted open windows.Newell continues to provide value by maintaining excellent customer service.Newell kept customers at 95% line-fill and 95% on-time delivery in the 1970’s, when the average first-pass line-fill was 80%.  Newell continues to improve at 100% and became the “no problem” supplier.Rarity is established because Newell buys out so many high quality companies, making it difficult to compete. Newell’s reputation for excellent service and top performanceis difficult to beat.  Imitation is difficult because Newell distributes high quality products so efficiently.Newell’s success is due to their quality products and service, despite not having the lowest prices.  Newell’s organizational skills allowed them to make so many acquisitions work.  The “Newellization” process assimilates companies in less than six months.  The Electronic Data Interchange (EDI) is an electronic management system Newell uses to transmit purchase orders, invoices, and payments to and from its retailers.

Challenges in the late 1990s

The late 1990’s brought challenges for Newell.The buying power of customers increased and by 1997, Walmart, Kmart, and Sears controlled 80% of the discount retailer market.  These retailers were able to obtain significant leverage over pricing and scheduling.  To overcome this challenge, Newell increased the efficiency in its warehouse and distribution systems by improving its technology and EDI.  Newell usedthe EDI to schedule its own production and deliveries.

The acquisitions of Calphalon and Rubbermaid were additional challenges for Newell.  Both companies were major brands and had strong identities. Calphalon was in a completely different market; it wasdepartment and specialty stores.  Rubbermaid seemed too big to be assimilated.

“Newellization” of Calphalon and Rubbermaid

The acquisition of Rubbermaid and Calphalon made sense for Newell.  Both of these companies brought strong brand names to Newell.  Calphalon is a privately held manufacturer of elite cookware, so it gave Newell access to the department and specialty store markets, and increased the company’s cookware to the top of the market.  Calphalon signed a contract with Target, and in 1998, Newell acquired Calphalon.  Newell did not plan to sell Calphalon products to other mass merchandisers.  Instead, it kept the Calphalon product lines in the department and specialty stores and used them to build Newell’s presence in these arenas.  This strategy prevented competition between Calphalon and WearEver as Newell’s “best” brand in the mass merchandisers.

Rubbermaid is a company that manufactures plastic products.  Initially it did not make senseto acquire because it was such a big company, but it ended up providing Newell with a strong global presence.  NewellRubbermaid created a bigger product than Newell alone.  Rubbermaid was successful in the late 1980’s and early 1990s.  But then the CEO changed and its net earnings fell from $164 million to $143 million.When resin prices rose in 1995, Rubbermaid was unable to accommodate its prices, and was undercut by smaller, more efficient competitors.  The merger was risky due to Rubbermaid’s poor customer service reviews.

Potential alternative expansion modes to the acquisition of Calphalon and Rubbermaid

An alternative method of expanding Calphalon would be to offer it on the same shelves as theWearEver products.  Not only would this expand Calphalon’s market, but it would also help to eliminate competition from other companies.  Customers would have two “best” options as opposed to one.  Instead of just catering to the financial needs, Newell would be catering to different aesthetic and personal tastes of its consumers.

Expanding Rubbermaid will be difficult.  Rubbermaid’s sketchy history with customer service and their large size will make it difficult.  The CEO McDonough believed that Newell would be able to apply its Newellization to Rubbermaid as it had done with smaller companies.  However, due to its size, NewellRubbermaid was more of a merger rather than assimilation.  Because this was allowed to happen, Newell’s stock plummeted.  If Newell would completely assimilate Rubbermaid and exert the control it usually does on its smaller companies, success would have been better.

Conclusion

Throughout the years, Newell has established a strong presence in the market.  Its excellent customer service, strategic planning, and strong centralized administration has given it a distinct competitive advantage. Though it has had its share of challenges, Newell will be able to have a good and profitable future.