Article: Montgomery, Cynthia A., and Elizabeth Gordon. “Newell Company: Corporate Strategy.” Harvard Business School Case 799-139, March 1999. (Revised January 2005.)
Newell Company has positioned its cooperative-level strategy as Merger & Acquisition during the decades of Newell Company’s development. Newell Company considers two main factors when it conducts Merger & Acquisition: whether the target company and Newell Company’s product positioning are consistent, and whether the target company can develop more markets or product lines. I will talk about these two aspects and why these two factors contributed to the success of Newell Company’s Merger & Acquisition strategy.
- 1. Is the product positioning of the target company consistent with that of Newell Company
Since the establishment, Newell Company has defined itself as a company specializing in the production of basic home and hardware products. Therefore, when acquiring, it pays special attention to this factor. Newell Company’s target products are mainly low-technology, nonseasonal, non-cyclical, and non-fashionable products. The demand for these products is stable and explosive growth rarely occurs. These factors can help Newell Company save inventory while ensuring a timely delivery rate.
Another important factor is that these target companies have a similar operating model with Newell Company, which can facilitate the “Newellzation” of the target company at almost zero cost after acquiring the target company. ” Newellzation is an important factor for the success of Newell Company in the acquisition. Newell Company first manages the top management (administration, personnel, and finance) of the target company directly after it acquires a company. Since the product positioning is similar, the management of Newell Company will not be unfamiliar with the management of the target company, which reduces the personnel cost of the top management and realizes the centralized management of the company. Secondly, the Company will set up corresponding divisions for the remaining production and sales links. The divisions are directly responsible to Newell Company. The product development and sales of the divisions are all managed by the president of the divisions. Each division is equivalent to an independently operating company.
Each division should use Newell Company’s unified financial system, sales order system, and manufacturing management system. This system can facilitate Newell Company to understand the specific information of each division and share this information with different divisions to obtain accurate market dynamics. By doing so, different divisions are independent in operation, but they can obtain more market information to optimize their decisions. At the same time, a centralized information system can save the development cost of each division. Each division can operate more efficiently using Newell Company’s unified information platform to save the cost of each link. On this basis, Newell Company completed the “Newellzation” of a company.
Newell Company has strict management of the product lines of each division to avoid vicious competition in the product lines within the company. The above practices of Newell Company take the acquisition of the target company as part of its development, reduce operating costs and optimize company management to realize the revenue growth of the target company.
2. Can the target company develop more markets or product lines
Another important consideration for Newell Company when purchasing products is to develop more markets or product lines. Newell Company has rapidly expanded its product line by acquiring more than 30 major businesses in 20 years. There are more and more product types in its focus–basic home and hardware products with the acquisition of Newell Company. In this case, Newell Company also pays special attention to product differentiation. Newell Company will say that the product lines of different divisions are divided into different grades to meet the needs of different consumers, which can refine the product classification and reduce the influence of competitors on the product lines.
Newell Company also paid special attention to the impact of market demand when acquiring. For example, Newell Company voluntarily sold Wm. E. Wright Company in 1989 because the market for home sewing was moving to small independent retailers, while Newell Company mainly focused on large retail business. Therefore, Newell Company’s choice of the target company is to help it expand its market share. It will be abandoned if the target company’s market does not conform to the company’s strategy. This idea, for Newell Company, a company with many product lines, can concentrate more resources to develop high-quality product lines.
Newell Company is especially good at optimizing the structure of the target company to reduce costs after the acquisition, so the profitability of the target company is not a particularly big consideration. Newell Company’s acquisition strategy is mainly to integrate different enterprises using its management advantages and let different enterprises share certain resources to achieve the effect of “1 +1 is greater than 2”. Market resources and product lines are very important at this time.
With the above two important factors, we can see whether the acquisition of Calphalon and Rubbermaid adds value to the businesses within its portfolio.
Calphalon is a privately held manufacturer of anodized aluminum cookware. As I mentioned earlier, Newell Company’s cost control ability was very strong, although SG&A’s expenditure accounted for 25% of sales in Calphalon before Newell Company acquired it. Newell Company acquisitions never care about the status of operations before the acquisition, but only about its market share and whether the product meets Newell Company’s strategic goals. Calphalon has a large number of customers, as well as a mature sales team and sales model. The sales team has established a good relationship with customers. For Newell Company, the acquisition of Calphalon can expand its product line in kitchen utensils and win more market share and customers, which is a factor that Newell Company attaches great importance to. At the same time, the kitchen utensils sold by Calphalon are consistent with the strategic objectives of Newell Company, which belong to low-technology, nonseasonal, non-cyclical, and non-fashionable products. Through these two points, we can be sure that Newell Company’s acquisition of Calphalon is to add value to the businesses within its portfolio.
Rubbermaid is a manufacturer of plastic consumer and commercial products, with outstanding brand value and innovative ability. In 1993, Rubbermaid was the most admired company in America, according to a survey quoted in fortune. This fully shows the brand value of Rubbermaid, it is at a disadvantage in the competition with competitors although in the subsequent operation, due to cost control reasons. However, its market share is an important factor to attract Newell Company. Newell Company can rapidly expand its share in plastic consumer and commercial products after the acquisition. It is entirely possible to use its information systems and management methods to help Rubbermaid reduce its operating costs and improve delivery speed. Newell Company’s “Newellzation” has been successfully used in many companies. Newell Company needs a company with products, market share, and consumer groups. Rubbermaid fully fits this feature. Newell Company made “Newellzation” after the acquisition, and then it increased its profit and shared resources with other business units to help Newell Company achieve the effect of “1 +1 is greater than 2”. Therefore, Rubbermaid’s acquisition is to add value to the businesses within its portfolio.
The way Newell Company adds value is to expand its product line and market share by acquiring related companies. Newell Company will save the operating costs of target enterprises and increase their profits using its advanced information management system and centralized management structure. At the same time, Newell Company focuses on serving large retailers. It can provide different kinds of products for large retailers and ensure the consistency of all products in terms of delivery efficiency and product quality through the integration of multiple product lines. This approach by Newell Company enables each acquiring enterprise to maximize its contribution to the company’s value. In the case of multiple product lines, risks are dispersed and adjustments are made in a time when changes in the market are found. This cooperative-level strategy ensures the benign development of enterprises in many aspects.
