Newell's Corporate Strategy and How It Adds Essay

Newell's Corporate Strategy And How It Adds Value To Its

Businesses

Newell's corporate strategy, inspired by Bob Katz, was in 1967 to describe "its focus as the market for hardware and do-it-yourself (DIY) products to volume merchandisers" (Montgomery 1999:2). The philosophy behind this strategy was Katz's -- and it prompted Dan Ferguson, CEO of Newell, to allow the company to "build" on what it knew how to do best. What Newell knew best was "how to relate to and sell to a large retail institution -- the large mass retailer," and so -- after going public with its stock in 1972 -- Newell began a policy of actively "adding new products by acquisition," which could then be sold in retail stores (Montgomery 1999:2). Newell's strategy was aggressive, centralized (initially -- later departmentalized), and functional, and allowed the company to become a billion dollar corporation by the 1990s. This paper will analyze Newell's corporate strategy and show how it added value to its businesses.

The Corporate Strategy

Key to Newell's early success was the acquisition of "companies that manufactured low-technology, nonseasonal, noncyclical, nonfashionable products that volume retailers would keep on the shelves year in and year out" (Montgomery 1999:2). The advantage to these sorts of acquisitions is evident in the product line: Newell would never be left holding bag; these were products continually in demand -- products, in other words, that would move.

What Newell did with these companies, which were usually underperforming -- what with "operating margins of less than 10%" -- was to streamline them through a kind of "Newellization" (Montgomery 1999:2). Newellization was the terminology used to describe the operational flipping of a company. Newell decreased costs by allowing the company to make products more efficiently and elevating margins to more than 15%.

However, Newell soon realized that its centralization process was not the best for sales. It began to reorganize and divide into sections. Newell's dynamic resolve to continually evolve and make itself just as streamlined and efficient as the companies it acquired was aided by the fact that the corporation still remained "centrally controlled by corporate-run administrative, legal, and treasury systems" (Montgomery 1999:3).Just as Newell's mission statement in 1967 had let everyone know that "we are dedicated to building growth in earnings for Newell" based on the fact that company's management was "professional, young, aggressive" and knowledgeable, Newell's mission never changed but remained committed to pursuing ground and increasing revenue (Montgomery 1999:13). In fact, the formula for Newell's corporate strategy could be boiled down to a simple mathematic equation, as related by Dan Ferguson: "2+2 do not equal 4. If we do this right, we get more than 4" (Montgomery 1999:3). Making numbers grow by allowing acquired companies to focus on their core product was Newell's specialty.

How Newell Added Value to Acquired Businesses

To bring businesses back to life and to greater profit margins, "Newellization" was put into effect immediately -- "usually…in less than 18 months, and often in less than 6 months" after acquisition (Montgomery 1999:3). Newell would place in power a new leadership team or company president who could be found within the company, and would emphasize "an integrated financial system, a sales and order processing system, and a flexible manufacturing system" (Montgomery 1999:3). Centralization would also be a key fixture to streamlining administration sectors, accounting, and customer relations.

For example, Newell acquired Anchor Hocking in 1987. Anchor Hocking manufactured glass and cabinet hardware and had fallen under Newell's radar because, while its profits were higher than Newell's, its "profit performance" was vastly inferior: a 0.5% profit margin compared to Newell's 11% margin. Newell saw that it could turn Anchor Hocking into a streamlined business and increase its profit margins considerably by eliminating waste. Following corporate takeover, Newell eliminated "high-level Anchor executives, including the chairman; reduced the total number of employees from 10,400 to about 9,000 and closed one of three glass factories and the company's 25 retail stores" (Montgomery 1999:3). Anchor Hocking had "excess inventory" that Newell saw as extra fat and so trimmed it accordingly. Newell also helped Anchor Hocking to focus on producing merely its core products by….....