Newell’s Strategy & Diversification Policy

NEWELL’S STRATEGY & DIVERSIFICATION POLICY

Newell initially started with a product line strategy selling its products through multiple channels, but as the products were undifferentiated the problem was in trying to build a sustainable competitive advantage.

Ferguson’s meeting with Prof Katz planted the seeds of a new strategy that built on “build on what we do best” philosophy, i.e. “the knowledge to make a high volume/low cost product”. Ferguson realised that the large mass retailers were starting to dominate the retail market and were starting to gain considerable power over the smaller independent suppliers.

Leveraging their know how in dealing with and selling to large retailers, Ferguson realised that by meeting a large portion of the retailer’s merchandising needs while providing a superior customer service experience they would be able to achieve a significant advantage over its competitors. To this end Ferguson introduced a “package of product lines” as a new corporate strategy for Newell positioning the firm to take advantage of the growing discount retailing industry.

Post IPO, Newell embarked on a targeted acquisition policy to meet its corporate strategy objectives. It looked for firms that “manufactured low technology, non-seasonal products” that were “underperforming due to high costs”, acquiring over 40 firms manufacturing home and hardware products up to 1999.

By growing their product lines through diversification, Newell was able to place more “packaged lines” with the retailers achieving a higher percentage of shelf space when compared to its competitors while at the same time, becoming a “one stop shop” for the retailers.

The firms acquired by Newell were put through a “Newallization” process which focused on improving operational efficiency and achieved large economies of scale. With a well-developed skill transfer process in place and changing the acquired firm’s focus to its core products, Newell was able to quickly reduce costs and “raise operating margins over the 15% threshold expected of each business.

NEWELL’S CORPORATE RESOURCES AND ITS IMPACT ON COMPETITIVE ADVANTAGE & WTP

Newell’s corporate resources can be summarised by the list below:

• Relationship with retailers

• Core competence in manufacturing operational efficiency

• Its superior customer service

• Global logistics expertise (ordering and deliveries) (e.g. EDI System)

• Product line packaging

• Knowledge & skill of its management team (e.g. “Newallization”)

• Brand and reputation

• Acquisition policy

Newell’s ability to create and maintain its competitive advantage can be credited to the systematic use of its corporate resources across its businesses. Its ability to leverage its core competence of maintaining high levels of operational efficiency and its system of uplifting acquired firms to the same levels of efficiency and profitability gave Newell its competitive edge. This core competence comes from the knowhow and expertise of its workforce.

The change from a function to a divisional corporate structure shows the Newell understood that the best way to capture synergies was not through shared activity, but through the shared knowledge in its workforce. To this end, Newell consciously moves its human resources across business units to build a strong in house labour force.

Newell’s product packages (“good, better, best”), emphasis on brands with high awareness, and ability to quickly acquire and integrate new firms & product lines creates a huge incentive for retailers to only stock Newell’s brands on their shelves.

The combination of products having high brand awareness, packaged product lines with a low cost structure, its ability to meet retailer’s stringent demands on “just in time delivery”, electronic ordering systems and great customer service means that the retailers do not need to look to multiple suppliers. As Newell’s brands are well known, the end consumer is willing to pay a premium for the product. These factors when combined increases the retailer’s willingness to pay a premium for Newell’s products.

ORGANISATIONAL STRUCTURE’S CONTRIBUTION TO CORPORATE STRATEGY

The corporate office focused their efforts in managing the firm’s portfolio of products, acquisitions