Newell

Memo
To:

Alex

From: Morgan Baker

CC:

Jimmy Lanigan

Date: November 17, 2008

Re:

Newells current situation

Recently, the United States based basic home and hardware product company
Newell acquired Calphalon, a manufacturer of anodized aluminum cookware and
Rubbermaid, a manufacturer of plastic consumer and commercial products. These
acquisitions were deemed necessary by CEO John McDonough. Calphalon will
give Newell the ability to enter the department and specialty store markets as well
as help Newells cookware product line reach the top of the market. Rubbermaid
allows Newell greater presence globally and increases brand name. Below you will
find information about the Newell Company that will help you better understand the
current position and the direction to take in the future.
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 Newells 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
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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
o Increases marketing impact more than individual lines
o Increases economic impact on the financial community
o 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. Newells 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,
Dillards, Macys, 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 Newells Portfolio
This section focuses on Newells 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

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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 customers 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. Newells 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 Newells 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.

Newells corporate office added value to the companys in their portfolio in that
they focused on a centralized administration. Acquisitions and all the basic

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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 Newells 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 Newells disciplined approach derived from senior
managements 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 Newells 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

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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 divisions 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 companys 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

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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 Newells
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 Newells strategy to maintain high
customer loyalty. Calphalon also has a range of higher end products which
coincides with Newells 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
Newells 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 Calphalons 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

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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 Rubbermaids 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.

Works Cited

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Montgomery, Cynthia A. Newell Company: Corporate Strategy Harvard Business

School. January 31, 2005.

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