Corporate Strategy Assignment
Newell focuses on market for hardware and do-it-yourself (DIY) products to volume merchandisers
Adhering to a strategy of acquisition, consolidation and centralization, the company built divisions with economies of scale across a broad range of price points in numerous product offerings.
Based on “Build on what we do best” philosophy
The strategy is to acquire companies that manufacture low-technology, non seasonal, noncyclical, non fashionable products that volume retailers would keep on the shelves year in and year out.
Followed a program selling approach offering categories of “good” “better” “best” products. Acquired businesses shared fundamental similarity
The companies chosen for acquisition were underperforming due to high cost and the operating margins are less than 10% in general
The acquired companies were put through a process of streamlining, focusing on operational efficiency and profitability
Followed stringent approach of redirecting acquired business to focus on their core product and align them with Newell’s systems and processes.
Three standard systems are introduced in the acquired company within 6 to 18 months after acquisition
Integrated financial system
Sales and order processing system
Flexible manufacturing system
Centralized administration at corporate level is responsible for legal and tax issues, benefits, Electronic Data Interchange, credit and collection, financial control systems
Each division is responsible to handle design, manufacturing, marketing, sales, and service as well as merchandising to the customer but centrally controlled by corporate-run administrative, legal, and treasury systems.
Non negotiable payment agreement of 2%-30-net-45
Established process of integrating acquisitions and streamlining it with parent company practices and regulations
Expertise in manufacturing , distribution, customer relations and customer service
Economies of scale
Centralized administration at corporate level
Program selling approach is followed in all product categories by offering “good” “better “and ” best” which protects itself from new entrants at both the high and low price points
All these are consistent advantages and not a one time advantage
Analysis as per Porters theories on
How attractive is the industry? Not attractive
Mass retailors are so giants as 80% of the discount retail industry is controlled by top three chains.
Servicing a mass retailor is very difficult.
High penalty on unfilled orders by retailors.
Industry average for first-pass line-fill (the measure of stock available when an order was received)on 1970 itself was 80%
Retailors are expecting cross-docking system through which they can eliminate inventory other than at the store level.
What is the cost of entry? Low?
Cost of entry is expected to be low as this industry expects only low technology, non fashionable items
But in the case of acquisition of Rubbermaid, the cost of entry was really high as it worse affected share holders value (Fell from $49 to $43.8) which actually eaten up its expected returns from new business.
Will the business be better-off? Yes
Through the proven process of “Newellization”, both the acquired division and the parent is expected to enjoy all the benefits described earlier.
Analysis as per Porters theories on
Based primarily on diversification through acquisition without integrating the acquisition to create any new strategic position
Newell always addresses integration of acquired company to its own principles and standards of so called “Newellization”
So we cannot say that they were following Portfolio management Restructuring
In this model the acquired company will undergo serious...
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