How Did Newell Try to Create Value?

How did Newell try to create value?

First of all, there are a lot of answers to that question. What strikes most is the high number of acquisitions undertaken by the Newell Company, which in the end let it become the single most important company in the business of housewares.

The main effect were tremendous economies of scale and to a smaller amount economies of scope. Targeted firms all showed a big market share and helped ensuring Newell’s significant presence in the retailer’s shelf space (showing a portfolio on several price-levels), or at least improved capacity utilization while reaping the benefits of globalization. As a matter of fact, Newell’s new assets led to horizontal as well as vertical diversification. Their motto of “Build on what we do best” was integrated by leveraging core competencies, which became known as “Newellization”. After an acquisition, the companies were put through a process of streamlining, focusing on operational efficiency and profitability. When looking to exhibits 11 and 13 of the case, it is likely that Calphalon and Rubbermaid can fit this picture: although they increased net sales between 1992 and 1997, their costs also increased with result that their net income did not change a lot. By making these companies more efficient, Newell can contribute to increasing the net income they generate.

Newell’s sales approach was to sell a high volume of goods to large retailers. They pursued a clear cost-advantage strategy. Low-technology products were provided on large scale and on a regular basis. Good customer relations could evolve, as Newell was famous for their reliability and their capability of accomplishing JIT-deliveries and quality demands. Therefore Newell needed some relation-specific investments like specialized workforce, but also up-to-date technology. Although Newell was facing buyer-power to a large extent (which it tried to escape from later by acquiring stronger brands), it could afford to charge a price-premium for the delivered services and goods.

What furthered high net-incomes was crucially the integrated financial system, a sales and order processing system. Centralized financial activities, for instance corporate purchasing, were a main determinant of Newell’s performance. Costs were emphasized and “Bracket” meetings stressed the importance financial targets. Additionally, Newell succeeded in enforcing, that payment-agreements were non-negotiable. Also exclusive delivery contracts were avoided in order to keep a certain degree of flexibility.

Another important point is referring to Newell’s organization. Everything was focussed on operating efficiency based on extensive spending controls and the initial “Newellization”-process.

In former times the whole corporation was centralized, but through gaining growth, adaptations needed to be done. Besides centrally organized corporate functions, individual responsibility for manufacturing and marketing and eventually profit-centre were introduced. By doing so Newell tried to maintain its “entrepreneurial drive” and heat up competition between the departments. Not only wanted Newell to grow through acquisitions, but also through internal growth. To support this assumption, the authors refer to exhibitions 11 and 13 of Calphalon and Rubbermaid where it can be seen that both companies grew a lot in the time period between 1992 and 1997, which could be achieved through internal growth. By the takeover of both companies, Newell assures to grow internally. To back up this strategy in Newell itself, bonuses were based on division performances. Nevertheless, also stock-options played a role in the monthly salaries which helped to coordinate corporate wide ambitions.

Last, but not least, corporate culture deserves mentioning. Newell’s severe cost-focus combined with the aim to meet quality-requirements and the highlighting of good customer relations, needed resilient and creative personal. One step to get the best people was applying an intense application process. The socialization period took place in the “Newell-University” and was followed by frequent transfers within the company. Finally, fast promotions could be seen as an incentive to attract high-potential employees.

Does Newell have a successful corporate strategy? Does the company add value to the business within its portfolio?

According to the description given by the case, we think that Newell has a successful corporate strategy, which is an ongoing value creation strategy based on the stand-alone value creation. The result parental value is realized through the operational gains in each new business acquired and by a stronger Newell brand,