Business Case Study: NewellRubbermaid
1. What are the goals and objectives of Newell?
It is no wonder that the Harvard Business School selected NewellRubbermaid as a target for one of their case studies. Ever since the company switched its focus in 1969 toward acquiring companies that meshed with its core goal of providing mass retailers with non-cyclical household products, Newell has been a model for deft corporate management. This “build on what we do best” philosophy (and a commitment to keeping operating margins above 15% in all divisions) has allowed the company to virtually guarantee its spot on the shelves of Wal*Mart and Target, despite these retailers sometimes overpowering price and delivery demands. As we enter the 21st Century, Newell has taken this a step further by expanding globally in step with these mass retailers.
2. What businesses/industries are they in?
Since it is pretty apparent that the company only acquires related businesses that fit the mold of their current distribution system, or at the very least can be changed to fit it, I would argue that Newell is resource-based. Executives at the company seem to think that, despite its distinct divisional structure, Newell is not a holding company. This point can be debated when you consider it empowers each division to run independently while simultaneously keeping a tight rein on each one’s financial output. Yet, due to the highly-related product attributes across the divisions, I tend to agree with the executives.
Newell takes this integrative approach one step further than most when acquiring new companies, since it looks to see if it can leverage preexisting relationships with retailers whenever adding a new business. According to the case, the “most important asset in acquisition is shelf space.” Once acquired, the Newellization process begins.
3. What are the unique resources they have developed?
As Newell grew as a company, it switched from a functional to divisional management style. This was an important decision when you consider the number of new product categories that were added in a generation. To be honest, it was even more important since the company really had little differentiation between its products and those offered by its competitors. As such, Newell has thrived despite being armed with only a few specific resources.
In actuality, Newell succeeds thanks to its strength in three general capabilities. First and foremost, it never loses focus on its goal of keeping a solid reputation with national chains. It is able to deliver on this target thanks to its second strength, its corporate structure. Finally, it possesses technology, in the form of EDI, which is more than adequate for the needs of its retailers.
4. How does the corporate office create value for its business units?
I was able to find three primary reasons why Newell corporate is able to create value for its business units. During the acquisition process, the corporate office handles every aspect of the deal, so as not to “distract” the divisions from their profit-first missions. This is important since it frees the divisional presidents from worrying about things outside of their control.
Once a new business unit is added, Newell corporate is excellent at streamlining that division. The case cites an impressive time of six months to two years for this turnaround. Perhaps even more astoundingly, Newell is still able to bring a new product division into the family despite being a very large company already.
Lastly, Newell is extremely diligent when it comes to monitoring the financials of each division. By holding bracket meetings whenever things deviate, even slightly, from the target margin, corporate keeps its divisions scared and in line.
5. What kinds of systems has Newell set up to manage its business units?
Going back to this idea of Newell effectively managing its divisions, the case emphasizes how the company places “primary importance on profit performance.” A lot of the credit for the success here can be attributed to the structure of the company. Through the efforts of the corporate administrative, legal, and treasury systems, the unique divisions are competently controlled by Newell executives.
The corporate structure also aids its divisional framework by adhering to a very specific hiring system. While many companies might preach about the policies their human resource departments use to find employees, Newell just seems to have a better idea of the type of person who will fit into the firm. This should not be discounted; especially when you consider the high rate of transfer between division heads. Moreover, it allows them to find salespeople who are motivated by the reward system currently in place at Newell.6. Explain the sources of sustainability for Newell.
There is no reason to believe that Newell will not continue to succeed in the future given its pedigree in the mass retail supply industry. As stated earlier, the company seems to know how to make itself relevant to mass retailers despite having a product line that is very similar to the competition. This stems from the competitive advantage Newell has developed in the area of reliable delivery that results from impeccable management and corporate structure. Consequently, the company is able to make good on its promise to be “more important to the mass retail customer.”
Of course, everything in retail hinges on the ability of products to sell. Newell is secure in this regard thanks to its portfolio of non-cyclical products and a commitment to develop (or acquire) strong brands. As an added safeguard, the company has perfected the art of owning every feasible price and/or quality level in the areas in which it deals. In other words, retailers and, ultimately, customers, can find whatever they are looking for from Newell when shopping for that particular product.
In the end, the only thing that can hurt Newell in the future is if one of its divisions consistently under-delivers to retailers, thereby subjecting the company to the old industry adage: “(Retailers) know them by their worst performing product.” But this seems highly unlikely in the case of NewellRubbermaid.
