Newell's Corporate Strategy and How it Adds

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 reducing its product line by 40%. Centralization of "administrative, financial, and computer functions under one roof at Newell's" (Montgomery 1999:4) allowed the corporation to eventually speed up production and fill orders in one week that had previously taken more than two.

Getting Businesses to Be What Retailers Wanted What Newell looked for in business product lines was "shelf space" -- meaning that Newell was interested in acquiring a company that produced something which retailers (like Wal-Mart) would consider a staple item "that ranked #1 or #2 in market share" (Montgomery 1999:4). Consolidating its "industry capacity" was essential for Newell.

This meant that it would go out of its way to pick up smaller businesses just to "round out its existing product lines" -- a practice which not only allowed Newell to streamline itself but also allowed it to make all of its ventures and businesses more efficient (Montgomery 1999:4). Of course, sometimes overextending itself could be problematic and cause Newell to lose focus of its core objective -- which was to maintain a close relationship with retailers.

When, for example, Newell realized that "home sewing products" were moving out of retail shops and into independent stores, Newell was obliged to dump an otherwise healthy and profitable business. By keeping its focus on major retailers, Newell never became distracted or overburdened with non-essentials. As retailers' interests changed, so too did Newell's. Newell had to adapt to what its main interest's interests were.

When information technology became a focus of retailers, Newell began streamlining its communication services and enhancing its performance in terms of "shipping goods, getting them on the counter, and keeping the hooks full" (Montgomery 1999:5). With newer and better technology, Newell could receive daily reports on sales and plan their shipping accordingly.

On-time shipping and cost-efficient "cross-docking" became such an important step in keeping Newell at high margins that "if [a] shipment was not on time, there was no second chance…[and] some retailers began charging suppliers the gross profit (or full margin) on missed shipments" (Montgomery 1999:5). For Newell to stay competitive and at the top of its game, it had to measure out its shipments exactly -- and that meant using the newest and best technology available to interact with retailers across the country.

In the end, Newell was able to "keep its customers at…nearly 100%...line-fill and…on-time delivery" (Montgomery 1999:5). Being seen by retailers as the easiest and best performing supplier in the country was part of Newell's policy plan. If.