MARKET STRATEGY

NEWELL COMPANY CASE STUDY ANALYSIS

Submitted By:

Ammarah Nasrullah Mehreen Omer

M. Ali Aman Omer Saeed Khan

Osama Ahmed Khan Shanza Fatima Baig

Raphael Atif Waleed Akbar

Submitted To: Ms. Maryam Wazirzada

Dated: 1st February 2013

Does Newell have a successful corporate-level strategy? Does the company add value to the

businesses within its portfolio?

The company did add a lot of value to the businesses within its portfolio, which essentially was a

translation of a successful strategy at the corporate level as it acquired many under-performing

companies along the years. These companies ranked very high on market effectiveness and

performance but performed very poorly financially. The companies that manufactured brand-

name staple products ranked first and second in terms of market share. This was a green signal

for Newell to acquire these companies as it thought that they were significantly undervalued due

to poor management and can thus be rejuvenated with the better support structure that Newell

has and ultimately turn profitable for the parent company.

It streamlined the businesses of the acquired companies through its IT-based sales and flexible

manufacturing system. In essence it attempted to create synergies by exploiting the already

existent operational expertise and creating new operational efficiencies. Globalization played an

important role here for Newell as the combination of Rotring – a German manufacturer of

writing instruments and Panex – a cookware manufacturer in Brazil, in combination with

Rubbermaid accounted for 25% of the total sales for Newell. Newell manufactures low-cost but

high-volume staple products like home furnishings and house-wares and sells these to large

retailers. In other words, it doesn’t savor the smaller retailers as much which implies that it

primarily focuses its distribution and marketing efforts on a relatively few key accounts. It has an

intricate system of knowledge-transfer and sharing within the organization with job rotation for

managers along with comprehensive training programs and regular management meetings. It also

leverages economies of scope by exploiting relationships with discount retailers to get the shelf-

space it needs and negotiates the terms and conditions for products belonging to other

subsidiaries in its portfolio.

Because Newell re-designed its organizational structures according to the need of the hour, it set

forth a dynamic process of development within the company. It emphasized profit over sales, as

sales could be high but with little or no effect on the bottom-line because the processes of

production and marketing etc. were not efficient enough. Furthermore, Newell made the cash

collection procedures of the acquired companies flexible by eliminating the 90-day terms

agreements.

What are the company’s distinctive resources?

Developing as a company, Newell took a number of steps in order to reduce its competitiveness

and improve its position in the market by capitalizing on internal strengths. This was done

through acquiring some new companies; Rubbermaid and Calphalon.

Newell began the process of assimilating Rubbermaid’s operations through a process called

“Newllization.” The company expected that the merger would create synergy through leveraging

the Newell Rubbermaid brands. The Newellization process was based on the prospective

acquisition target of having a number of attributes that correlate with Newell’s requirements of

the target organization.

Newell’s progress as a company made it more structured; it changed its structure from a

functional approach to divisional management style. This was a major decision to consider the

number of new product categories that were added in the production line. It was even more

important since the company had little differentiation between its products and those offered by

its competitors. As such, Newell has thrived despite being armed with only a few specific

resources.

In reality, Newell’s success was attributed to its strength in three general capabilities. First and

foremost, it did not lose focus on its goal of keeping a solid reputation with national chains. It

was able to deliver on this target because of its second strength that was its corporate structure.

Finally, it possessed technology, in the form of EDI, which is more than adequate for the needs

of its retailers.

Does the acquisition of Calphalon make sense?

The Acquisition of Calphalon proved quite beneficial for Newel. This helped Newel to enter non

mass merchandise market. This also helped Newel to sell premium product with strong brand

recognition without cannibalizing its existing cookware. Besides this, Newel products are

utilitarian in nature while Calphalon products are high end products with emotional appeal. This

would help Newel to enter the high end market. Newel can leverage the existing strengths of

Caphalon and can differentiate its product portfolio by using the skilled sales force, by giving

product demonstrations and training.

The acquisition would also help to reduce the Calphalon selling, general and administrative

expense which is 25% per year. The existing strength of Calphalon of having connection with

consumers and retailers could be used by Newel to establish its image as a retail brand.

Calphalon had 250 selling specialists who usually covered the major accounts. They were

responsible for managing the events and for giving in store cooking demonstrations for training

the personnel. Newel kept the Calphalon product in the department and specialty stores in order

to build its presence in the channel because the Kitchen essentials introduced by Calphalon were

the only hard-anodized cookware displayed in specially designed fixtures and had support from

Target and prominent positioning in material for Target gift registry program.

Besides this Newell management can bring discipline to Calphalon business in areas of financial,

organization and manufacturing and Calphalon can share its expertise with Newel in developing

pull strategies and building strong connection with distribution channels and customers.

However, there might be some negative consequences for Calphalon. Because Newel keeps the

brand name of target firm but discard the existing people and processes, which is of no use to

Newel because instead of using the skilled workforce and well planned processes developed by

Calphalon, Newel discards them. Also, Calphalon has build its brand equity by the effort of its

sales force and by educating the retailers and end users but Newel might destroy the premium

position of Calphalon and break the barrier of entry for premium competitors at high end

retailers

Was the Rubbermaid acquisition a good move for Newell?

Rubbermaid acquisition was a good move because it helped Newel to integrate a new acquisition

in to a new product line with in a short lead time. Rubbermaid manufactures plastic products and

its main product line includes commercial and infant products which it sells through its

subsidiaries. Rubbermaid became known for its brand equity and product innovation and its

revenues also increased when the Gault brought GE disciplines and methods to Rubbermaid.

The main aim behind acquiring Rubbermaid was to gain significant shelf space at mass retailers.

This acquisition will help Newel to place its products at the front of the aisles and to increase its

sales. Despite the fact that Rubbermaid was inefficient in its operations, however Newel can help

Rubbermaid by leveraging its operational and financial system and can use the existing brand to

improve Rubbermaid deteriorating position. The rising cost of resin accounted for 73% as a

percentage of sales in 2007 along with logistics and service problems which have reduced

Rubbermaid profits as depicted by Exhibit 3. For 1992-1994 Rubbermaid’s performance in terms

of COGS (67%) and SG&A (17%) was in line with Newel COGS and SG&A during the same

period 67.5% and 15.5%. By controlling the Rubbermaid’s cost Newel could make 9 % to 11%

net income as a percentage of sales. Moreover, acquiring Rubbermaid will value Newel over the

$ 10 billion market capitalization. This market capitalization would further help to overcome the

increasing market power of retailers as they try to reduce Newel margins.

The Newel two pronged strategy fits well with that of Rubbermaid. However Newell would need

to overcome the market premium by future savings as Rubbermaid at time of acquisition was

over valued at $ 5 billion. Besides this, Rubbermaid before acquisition had $ 2.49 B in working

capital and $ 377 million total debt making it an attractive acquisition as depicted by (Exhibit 5).

This acquisition helped Newel to enhance its opportunities for internal growth and globalization

by leveraging the strengths of smaller companies.

Therefore whether acquisition of Rubbermaid will add value to Newel depends on the Newel

ability to integrate it in to the existing product line. Newel needs to devote a lot of time and

resources for training and managing Rubbermaid workforce therefore a trade off needs to be

done by Newel that whether to spend time on new acquisitions or on leveraging the Rubbermaid

existing strengths and making use of product development and innovation.

Conclusion

Through thoroughly analyzing the case it could be seen that Newell has adopted a new technique

to increase its efficiencies in its operations as well as add on to variety in its product line by

acquiring companies that could benefit its structure. The exhibits show that it has engaged in

acquiring a number of companies in the same industry and has expanded its operations. However

it needs to tactfully handle the varied setups of these companies, it needs to focus on adopting

their core competencies and avoid the internal issues they are facing for example in the case of

acquiring Rubbermaid.

It could also be seen that the change in their management style from functional to divisional has

been beneficial for the company. The use of synergies also proved as an effective method to

enhance the performance of the company. But the major decisions taken by Newell in terms of

acquisitions, structure change or synergies should add value to the business being its sole

concern.

Recommendations

As we have seen many examples around us and we have even studied the phenomena of how

people and process make and break a business; Newell also needs to understand this phenomena.

The case tells us that Newell after acquiring a business tweaks with people and processes, not

understanding that these two elements are the crucial components that have made the business

they are acquiring. Changing people and processes would turn the acquired business upside

down. What Newell should focus on is maintaining and creating synergies between the different

subsidiaries and acquired businesses to reap the most out of them. Newell should devise a

strategy that leverages on the strengths of the businesses it owns. The exhibits clearly show that

over time the ROA and ROI have been decreasing, the aggressive Newellization (take overs) are

the main reason behind these decreasing figures. Newell should at this point in time focus on

increasing ROA and ROI by better management of the business and creating synergies between

the businesses. It’s time that Newell focused on a corporate name and let the brands operate with

their original names under the banner of the corporate name for a better brand recognition.

Though Newell has been able to diversify its business portfolio by acquiring businesses, however

these businesses are still exposed to industry specific risk as most of the businesses belong to the

same industry and if a major player/competitor comes with an aggressive strategy; it might cost

the Newell as a whole in terms of market share. We do not recommend Newell to go for a

conglomerate at this point in time but would advise them to follow this strategy in the future

once ROI and ROA are more stable.