Newell & Rubbermaid

Case Study Analysis

Submitted By: Vinesh MotwaniZain AliAffan RiazFaryal ArifNabil Nasir

6/23/2014

COMPANY BACKGROUND

Timeline

1903 Created in 1903 by the acquisition of curtain rods manufacturer by Edgar

Newell

1921 First acquisition of Barnwell Mfg. Co. and renamed to Western Newell

1965 Dan Ferguson named President who crafted the growth-by-acquisition

strategy

1983 onwards – acquisitions of W.T Rogers, Sanford, Levelor, Goody, Kirsch,

Rolodex, Calphalon, Rubbermaid and others

Vision

Newell is a manufacturer and full service marketer of consumer products serving the

needs of volume purchasers”

Offerings:

Best better good

“Newellization” –

Well-established profit improvement and productivity enhancement process that is

applied to integrate newly acquired product lines to the parent company.

Newell’s key resources and capabilities are tailored around the company’s needs for

growth and their customers need for diversity and efficient distribution. The company’s

product range and depth (good, better, best) creates huge incentive for retailers to stock

product from only one supplier. Their logistics operation with nearly100% first-pass line

fill and expanding global presence help the company improve and expand with their

customers (mass-merchandisers). The process of “Newellization” is a valuable resource

to the company by which Newell acquire, convert, and integrate a new acquisition

(products) into their existing product lines within a short lead time. This process provides

them an opportunity to gain additional market share in key distribution channels. The

company’s emphasis on firms (with high brand awareness and a low cost structure) after

Newellization creates an offering in the market which is difficult to imitate

Current Strategy

Acquisition of Calphalon

Acqusition of Rubbermind

Both were suffering from organizational issues and they were acquired with the aim to

achieve the aim of internal growth, globalization, financial rewards etc

PEST analysis

Political

Since Newell has a wide geographical spread, it can be effected by the policies and

regulations imposed by the governments of those countries in which it operates.

Moreover, it caters to extensive market segments with different product categories.

Regulations imposed by any regulating body can negatively affect the business.

Economical

The tax rate is a major concern which can hamper the smooth running of the

organization. The exhibit 4 shows the income taxes amount. Though the amount has

decreased over time but the percentage over sales has increased year on year. The rise in

taxes is a concern for the businessThe business has long term debts. The changes in the

market interest rate can adversely affect the business. The unexpected changes in the

currency values can result in significant changes in the cost and can lower the profit

margins.

Social

The raw materials that the company uses has an environmental concern

Technological

Technological advancements have aided the industry to boom with lower costs and a

more synchronized and centralized approach. Heavy reliance on technology or major

shut downs can break the continuous operations of the business.

Corporate Level Strategy

The Newell Corporate Level Strategy started as a product line strategy where Newell sold

their products of drapery hardware to all channels, but the product lines lacked differentiation.

In 1966, Newell bought a small window-shade manufacturer in attempts to conquer the

problem of differentiation. It was not until Dan Ferguson met Stanford Professor Bob Katz

and spoke about differentiation strategies that Newell really began to develop a “build on

what we do best” philosophy. After this discussion, Ferguson realized that Newell’s

competitive advantage was the knowledge of how to make a high-volume/low-cost product

and relate to and sell to the large mass retailer. In 1967, Ferguson identified a new strategy

for Newell, which focused a great deal on how to make Newell a better company both at the

time the strategy was written as well as in the future.

The Package Deal was introduced by Ferguson as a new corporate strategy for Newell,

based on their current monetary situation of approximately 10 million dollars, no long term

debt, and earnings which were substantial and growing. He focused on what could be

accomplished in the future based on the economic statistics of Newell in 1967.

Create a package of lines going to large retailers

Increases marketing impact more than individual lines

Increases economic impact on the financial community

Increases growth through performance and marketing leverage

This new strategy worked well for Newell because it addressed future expectations from the

company. In order to become a more global company it is necessary for Newell to increase

market impact which will, in effect, increase exposure to the global market. By sending a

package of lines to large retailers their brand name will be enhanced as well because of an

increase in products in the stores both domestically and internationally. It also exhibits that

Newell is a company that will continue to work hard for customers in order to maintain their

high customer approval rating.

Newell’s goal to enter the department and specialty stores will also be met because of the

increase in economic impact. As the economic stability of Newell and the products the

company provides are realized, Bloomingdales, Dillard’s, Macy’s, and other specialty stores

will become more interested in the company and become more likely to carry the Newell

brand.

After Newell decided to go public in 1972, Ferguson began adding new products by

acquisitions. In the next 20 years, Newell obtained more than 30 major businesses. Because

of the new acquisitions it was necessary to reorganize the company structure towards a

strategy of consolidation and centralization in order to achieve efficiencies. They moved

from a functional to a divisional organization and moved away from a single sales force to

sell all of its products. When they reorganized, each division was individually responsible for

manufacturing and marking, but it was still centrally controlled by corporate-run

administrative, legal, and treasure systems. This system became known as “Newellization,”

and each newly acquired company went through the process.

Value Added to Businesses in Newell’s Portfolio

This section focuses on Newell’s ability to enhance the companies in their portfolio. It is

necessary for Newell to continuously work with the various acquired companies in order to

maintain the level of quality the company wants their brand to portray to customers.

“The whole is greater than the sum of the parts,” is important to Newell because it

explains the Newell philosophy of “Newellization.” It is necessary for divisions to adhere to

a specific and disciplined strategy with permission to develop, but not to expand its core

products. This, essentially, allows the brand to be sold to customers and not the product,

which increases customer loyalty because the brand is known and individual products are not

lost to competitors.

“Newellization” normally takes place in less than 18 months after the acquisition of a new

business. It is essentially when the acquired company is taught the systems and processes of

Newell. This creates camaraderie between all entities of Newell so that the company, as a

whole, is more efficient in all aspect of the business. It also enables Newell to become a

market leader in nearly all divisions due to the ability to work together in all sectors of all

businesses because all top management is taught the same basic principles.

Competitive Advantage is enhanced by Newell because of their “good,” “better,” “best”

separation of products. This gives the customer’s of different financial backgrounds the

ability to purchase similar products, but within range of their monetary means. It also protects

Newell brands from competitors due to the increased amount of shelf spaced used in the store.

By following this philosophy, Newell becomes a strong player in each category it competes in

because of greater brand presence.

Newell focuses on making sure that all acquisitions, consolidations, and integrations reach

economies of scale across a broad range of price points in various product offerings.

Newell’s competition is maintained and orderly due to the protection from new entrants at

low and high price points, which is also known as “achieving critical mass.” This enhances

Newell’s competitive advantage because it requires high competition from other companies to

enter the market and to gain an advantage over the Newell brand.

Another competitive advantage Newell maintained was their 2%-30-net-45 payment

agreements. These were non-negotiable which Newell executives said was a matter of

discipline. By requiring these inflexible payment agreements it defended Newell against the

protestations of smaller retailers such as hardware stores. This gave Newell the ability to

price products consistently for all customers, from the local hardware store to mass retailers

such as Home Depot.

Newell’s corporate office added value to the company’s in their portfolio in that they

focused on a centralized administration. Acquisitions and all the basic functions of the

business were in the hands of the corporate level administration so that the divisions would

not be distracted from their main goal of generating profit. The top financial responsibilities

were divided between the Vice President of Finance and the Senior Vice President. Both of

these vice presidents reported directly to the company president, who answered to the CEO.

This created an efficient management team because it eliminated a lot of movement and

discussion between divisions. The CEO also maintained close relations with the top

management at major customer offices to decrease the amount of time to reach a decision if a

problem arose.

Newell also focused on good communication within the company and had numerous

meetings throughout the year in order for leadership roles to remain informed about other

aspects of the company. Division leaders convened several times a year for presidents’

meetings as well as the ability for regular encounters at trade shows throughout the year.

Annual management meetings were important as well because they brought together all

members of management to discuss the company as well as the ability for a two-day

conference within each group which featured presentations and programs aimed at

transferring learning. Monthly financial reviews were also important to maintain Newell’s

profit focus.

Other forms of communication were bracket meetings and the monthly collection of

operating figures. Bracket meetings were implemented if there were too many variances

within the budget. They were not meant to be pleasant for the division presidents, but

directed at identifying and solving problems within the budget. It was necessary to hold

bracket meetings if the flexed cost numbers showed an unfavorable variance even if sales

were above budget. Operating figures were collected monthly because of Newell’s

disciplined approach derived from senior management’s convictions that “if each piece is

done right, the whole will look after itself.” Because of the strictness of budgets it was

necessary for corporate management to meet with divisional managers regularly throughout

the year, with two meetings devoted to budget setting, and at least two focusing on strategic

planning.

Finally, the corporate office added value to Newell’s businesses in their portfolio because of

the high demand for positions. Any time that there is a high demand for positions within a

company, something has to be working well. Salary was based on a uniform system across

all divisions, which rewarded individuals on the basis of their positions and the size of their

divisions. All salaries for managers were equal to the industry average, and bonuses could

range from 33% for the most junior manager of a division’s 20-person executive team, to

100% for division presidents. Obviously, Newell had a good payment plan for employees

which greatly increased the interest to work for the company. Although, the interviewing

process was rigorous, once a potential employee was hired they attended a two-day training

program at the so-called “Newell University.” There were also frequent opportunities for

transfers and promotions in less than 10 years and all job openings were publicized within the

company. This kept the Newell knowledge within the company and the ability to acquire

informed top management was a much easier process.

Challenges in the late 1990s

One of the main challenges in the late 1990s was the increase in customer buying power. By

1997, three mass retailer chains controlled 80% of the discount retailer market. This allowed

retailers to obtain significant leverage over price and scheduling. It was necessary for

manufacturers, such as Newell, to increase efficiencies in their warehouse and distribution

systems. Newell decided it was time to improve technology and introduced the Electronic

Data Interchange (EDI), which was the company’s electronic management system for

transmitting purchase orders, invoices, and payments to and from its retail partners. The

divisions were able to use the data obtained from the EDI to schedule their own production

and deliveries which allowed retailers to maintain minimal stock levels in line with actual

sales. Technology eventually increased even more so merchandisers could provide Newell

with nightly point-of-sale data on every product sold the previous day. This data aided

reducing inventory other than at the store level and eventually became known as “cross

docking.”

Another challenge in the 1990s was the acquisitions of Calphalon and Rubbermaid. These

were both major stepping stones for Newell in that both companies will bring greater brand

recognition to the Newell brand. It was a challenge because of the speed in which the

companies were acquired and the short amount of time between the two acquisitions. At the

time, Calphalon was in a different market, and Newell wanted to enter the department and

specialty store competition. This required changes within the Newell Company because of a

different view of products and competition. Rubbermaid was a difficult acquisition because

of the vastness of the company in general. Some industry observers worried that this target

would be too large to be “Newellized.” Both acquisitions will be discussed further in the next

section.

Calphalon Acquisition

The Calphalon acquisition was a good decision because it accomplished what Newell was

searching for. Before the opportunity came to acquire Calphalon, Newell was looking for a

company that would give them the needed connection to enter into department and specialty

stores, while maintaining WearEver as Newell’s best, mass merchandiser brand. By

acquiring Calphalon, Newell entered the department and specialty store market and decided

to honor the Calphalon contract with Target which was to display specially designed fixtures

exclusive to Caphalon, “Kitchen Essentials by Calphalon.” Other than introducing Calphalon

to Target, Newell decided to keep Calphalon lines in department and specialty stores. This

enabled WearEver, to remain the number one mass merchandiser brand within the Newell

lines.

Calphalon fits well with the Newell company strategy in that they have good customer

connections. The company president of Calphalon said, “Upper-end cookware is bough on

emotion. People who are passionate about great food are just as passionate about their

cookware.” This comment makes it known to other companies such as Newell that

Calphalon holds quality as a main ingredient in customer satisfaction, which complies with

Newell’s strategy to maintain high customer loyalty. Calphalon also has a range of higher

end products which coincides with Newell’s price point strategy to deter competitors. By

having products at a range of prices it makes it more difficult for other companies to enter the

market and compete. Calphalon sells their product to retailers that will add value to the

company which also increases brand equity, another key component in Newell’s strategy.

Finally, Calphalon sells the brand and not the product. It is important to Calphalon to offer a

“store within a store.” Newell promoted the name more than the individual products, because

they focus on “the whole is greater than the sum of the parts.” Both companies look for the

ability to make their brand name stronger and not just individual pieces of the pie, it is

important for the whole pie to be full of good ideas to make a company a better competitor.

I would recommend that Newell use Calphalon’s strategy of “store within a store” with other

acquisitions and divisions. It might be a good idea to introduce this idea with WearEver in

order to better portray this brand as a top brand within the mass merchandiser stores. By

introducing chef endorsements, cooking classes, and book signings to the WearEver brand,

people that cannot afford higher priced brands such as Calphalon, will still have the sense that

they are buying a better product than others sold at mass merchandise stores. It would also be

beneficial to Newell to enter into other department and specialty stores with other products,

possibly a better quality of WearEver products. This will allow Newell products to reach

more demographics and increase brand name.

Rubbermaid Acquisition

I believe that the Rubbermaid acquisition was also a good decision for Newell because it

allows Newell to increase brand name and enter the global market with more market

influence. Rubbermaid has such a variety of products and they are sold around the world, by

acquiring this company, it allows Newell to increase their demographics to an even wider

range of customers.

Although, I think the acquisition was a good idea, I do not think that Rubbermaid corresponds

with the Newell strategy. Although Rubbermaid is known for brand equity and product

innovation it does not have good reviews when it comes to customer satisfaction. Customers

complained of a bad distribution line and expensive products. Some industry observers

wondered if Rubbermaid is too big to be “Newallized,” but I believe that as long as the two

companies work together for the betterment of Rubbermaid, “Newallization” will increase

Rubbermaid’s customer satisfaction a great deal. At the time of the acquisition Rubbermaid

realized that changed needed to be made and should work well with Newell in order to

maintain their brand equity.

I recommend that Newell definitely revamp Rubbermaid. Initially, it will be necessary to

break Rubbermaid into separate divisions, similar to what Newell did after it went public in

1972. This will aid Rubbermaid in focusing on different aspects of the company so that it can

then focus on a better distribution system which will, in effect, increase customer satisfaction.

By “Newallizing” Rubbermaid, we should see a similar effect to what we saw when Newell

reorganized into separate divisions. I also think Newell should use the Rubbermaid

innovation to increase technology and products with other acquisitions and divisions. This

will aid Newell in becoming a more aggressive competitor with all price points of products.

SWOT ANALYSIS:

STRENGTHS:

Diversity of products

Strong brand names

Horizontal acquisition strategy

Create market power and synergy

Divestiture and product line rationalization strategy.

WEAKNESSES:

Operational inefficiency (high cost of key materials, supply chain is in need of

restructuring)

Product issues (products with minimal profitability)

People concerns(employee turnover transition results in loss of knowledge)

OPPORTUNITIES:

Growth and expansion with future acquisitions

Rubbermaid & Calphalon acquisitions provide potential expansion, growth, and

success

International markets

THREATS:

Culture clash with new acquisitions

Integration difficulties can disrupt the company

Dependency on mass retailer

Threat of private labels

Lack of internal growth