Newell’s Strategy & Diversification Policy

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and centralized administration of basic business functions. This left the divisions free to focus on manufacturing and sales of their product lines and “their core function: generating profits”.

Financial responsibilities were distributed between the VP Finance and VP Corporate controller eliminating divisional distractions. Further, the CEO maintained close contact with their key customer’s leadership team which resulted in quick resolution of issues.

Good communications within the company was a key focus, with divisional presidents meeting multiple times a year. Annual meetings brought together the entire leadership team to discuss the state of the firm and featured presentations and programs designed to share learnings.

Newell held monthly financial reviews to review profit estimates along with “bracket meetings” focused on analysing variances to the set operating budget. This system of using operational controls (for example SG&A should not exceed 15% of sales) was aimed at leveraging the skills of its leadership team.

The corporate office determined the salary structure which was uniform across divisions. This allowed for easy transfer of personnel between divisions and sharing of knowledge. Newell’s original reward structure focusing on pre-tax ROA, award ceremonies and stock options encouraged a culture of competition and high performance. Realising the shortcomings of this system, Newell introduced the “internal growth” metric in addition to the existing structure to incentivise organic growth within the organisation.

Hiring processes were highly competitive with only 1 in 10 applicants qualifying. Executives were also made responsible for their own career paths with multiple internal job listings, ensuring the firm’s knowledge stayed with the firm.

NEWELL’S CHALLENGES IN THE 1990S

By the 1990s, the three largest discount retail chains had controlled 80% of the market, giving them significant influence over pricing and inventory management. The retailers insisted on maintaining minimal stock levels and demanded “just in time” deliveries of inventory. To take it a step further, the retailers provided suppliers with their point of sale data, leaving it up to them to determine the quantity and type of product that needed to be manufactured and delivered.

This forced suppliers including Newell to make significant investment in logistics and distribution system to increase their efficiency.

In addition, by this time most of Newell’s product lines had reached “critical mass” and showed little growth potential. This meant Newell would need to continue down the path of acquisitions in order to grow the business. However, by this time due to market consolidations there were fewer viable targets based on Newell’s acquisition criteria. To exacerbate the problem, the number of potential buyers that Newell would need to compete with increased by the 1990s.

STRATEGIC FIT OF THE CALPHALON AND RUBBERMAID ACQUISITIONS

The Calphalon acquisition fit with Newell’s target of acquiring underperforming firms with good brand recognition.

The addition of Calphalon allowed Newell to access new markets that were yet unsaturated without cannibalising its existing product lines as Calphalon focused on distribution through high end retailers as opposed to Newell’s discount retailers. This will allow Newell to diversify its product portfolio into the premium segment.

Further, Calphalon’s pull strategies could be leveraged by Newell to differentiate its product portfolio from its competitors allowing it to maintain a dominant position in the market.

The decision to buy Rubbermaid was to gain additional shelf space with the discount retailers by expanding its product portfolio. Through this acquisition, McDonough aimed to get Newell’s market capitalisation beyond $10 billion to increase Newell’s market power in relation to the discount retailers.

Both acquisitions signal a slight deviation from Ferguson’s original strategy. Calphalon was not a manufacturer of high volume products for the discount retailers which was a key criteria in Ferguson’s acquisition strategy.

On the other hand Rubbermaid’s poor reputation, brand equity and size would have precluded it from being a potential target based on Ferguson’s criteria.

However due to the changing landscape, market saturation of the discount retail landscape the two acquisitions are in line with the natural evolution of Ferguson’s strategy, if they are able to successfully implement the “Newellization” processes on the two