Newell Company: Corporate Strategy
Among the many acquisitions that CEO John McDonough oversaw for Newell Company during 1998, two exemplify particularly important strategic steps for this broad-range manufacturer of basic home and hardware products. The first was the acquisition of Calphalon, a privately held manufacturer of anodized aluminum cookware. Calphalon broadened Newell’s access to the department and specialty store markets and extended the company’s cookware product line to the top of the market. The second was the acquisition of Rubbermaid, a manufacturer of plastic consumer and commercial products with revenue of $2.4 billion versus Newell’s $3.2 billion. The new company would be known as NewellRubbermaid and would have a greater global presence and a broader product offering than Newell alone.
McDonough viewed these acquisitions as part of the next phase of developing Newell’s strategy, making a “course correction,” as he called it. In the face of the increasing market power of Newell’s primary customers, the volume retailers, McDonough saw a need to develop or buy stronger brands. Both Rubbermaid and Calphalon brought strong brand names to Newell. In addition, McDonough felt that the company had to continue to grow. Pointing to research that showed companies with over $10 billion in market capitalization commanded higher price/earnings multiples, he believed that it was critical for Newell to reach this level of capitalization. As he said at the 1997 Annual Meeting, “We [Newell] are not big enough to get attention.” With the Rubbermaid acquisition Newell’s market value would cross the $10 billion threshold.
The Roots of Strategy
Edgar A. Newell bought the assets of a bankrupt manufacturer of brass curtain rods in 1902. At the time, Americans were just beginning to move out of cities to the first suburbs, where people sought homes with extensive windows—both to let light in and to enjoy suburban views. Newell’s product—brass extension curtain rods—met with steadily increasing demand from the start.1
Newell began by selling its product to small hardware stores, industrial builders, and specialty retailers. As early as 1917, Newell became a regular supplier to the then rapidly growing chain of Woolworth stores, gaining national distribution and a solid reputation among national chain stores.
In 1921, Leonard Ferguson began his career at Newell, achieving the status of full partner and owner in 1937. After receiving his MBA from Stanford in 1950, Leonard’s son Daniel joined the
1William R. Cuthbert, Newell Companies: A Corporate History, 1983.
Research Associate Elizabeth J. Gordon prepared this case under the supervision of Professor Cynthia A. Montgomery. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. It is a rewritten version of an earlier case, “Newell Company: Acquisition Strategy,” HBS No. 794-066, prepared by Research Assistant Elizabeth Wynne Johnson under the supervision of Professor David J. Collis.
Copyright © 1999 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.
company and became CEO in 1965. At that time, Newell had revenues of approximately $10 million, a limited product range based on curtain rods, and no articulated strategy for the future. Dan Ferguson’s first task was to get control of Newell’s drapery rod business. The business had been guided by what was essentially a product-line strategy, selling drapery hardware to all channels— including motels, department stores, and in Europe—but lacking anything to differentiate its product. In an effort to overcome this problem, Newell acquired a small window-shade manufacturer in 1966.
About this time, Dan Ferguson attended a Young Presidents’ Organization meeting where he heard Stanford Professor Bob Katz deliver a speech on strategy. Katz’s ideas resonated, but they slipped to the back of Ferguson’s mind until months later, when he chanced to meet Katz on a plane. As they talked, Ferguson began to develop a “build on what we do best” philosophy.2 Already selling extensively to Woolworth’s and to Kresge (later Kmart), Ferguson foresaw the trend toward consolidation in the retail business and envisioned a role for Newell: “We realized we knew how to make a high-volume/low-cost product and we knew how to relate to and sell to a large retail institution—the large mass retailer.”3
In July of 1967, Ferguson wrote out his strategy for Newell (Exhibit 1), identifying its focus as the market for hardware and do-it-yourself (DIY) products to volume merchandisers. In 1969 the company made its first non-drapery hardware acquisition with Mirra-Cote bath hardware. This added a new product line to the Newell family and opened up a relationship with Zayre, a discount retailer that carried Mirra-Cote’s products. In making the acquisition, Newell hoped it would be possible to leverage the Zayre relationship to sell other items as well.
Newell went public in 1972, diluting what remained of the Newell family ownership. Ferguson recalled the decision to go public as one that had to be made “100 percent,” putting as much stock as possible up for sale to the public. Access to the capital markets permitted Newell to begin aggressively adding new products by acquisition.
Newell thrived by following a disciplined and aggressive two-pronged strategy, acquiring more than 30 major businesses in the next 20 years (Exhibits 2 and 3). To implement the strategy, Newell acquired companies that manufactured low-technology, nonseasonal, noncyclical, nonfashionable products that volume retailers would keep on the shelves year in and year out. Typically these firms were underperforming due to high costs, and most had operating margins of less than 10%. After acquisition, the companies were put through a process of streamlining, focusing on operational efficiency and profitability. This was widely known as “Newellization.” Since the businesses shared a fundamental similarity, Newell believed that it could quickly compare their income statements to its own, recognize where fundamentals of the cost structures were misaligned, and reduce costs accordingly. The aim of these changes was to raise operating margins above the 15% minimum Newell expected from each of its businesses.
As Newell assembled a multiproduct offering, it originally adhered to a strategy of consolidation and centralization in order to achieve efficiencies. For example, the firm had a functional rather than a divisional organization and used a single sales force to sell all of its products.
Over time, however, Newell underwent a major organizational transformation. The system of centralized marketing proved not to be an effective approach to selling a variety of products, and the company was reorganized into separate divisions. Each division was individually responsible for
2Personal interview with William Sovey, April 23, 1993.
3Don Longo, "Ferguson Guides Newell to the Top . . .," Discount Store News, vol. 28, no. 18, September 25, 1989, p. 82.
CS 340 Milestone One Guidelines and Rubric Overview: For this assignment, you will implement the fundamental operations of create, read, update,
Retail Transaction Programming Project Project Requirements: Develop a program to emulate a purchase transaction at a retail store. This
7COM1028 Secure Systems Programming Referral Coursework: Secure
Create a GUI program that:Accepts the following from a user:Item NameItem QuantityItem PriceAllows the user to create a file to store the sales receip
CS 340 Final Project Guidelines and Rubric Overview The final project will encompass developing a web service using a software stack and impleme
