![hires the company sought people who would be motivated by
success and a lucrative bonus system.
Applicants—mostly mid-level executives from other consumer
goods companies—were screened for
these particular management traits with a personality test and
put through an intensive application
process that only 1 in 10 passed. Each newly hired company
employee underwent a two day training
This document is authorized for use only by Nabih Saaty in
Spring 2014 BUS 612A-03 taught by Kamal from
February 2014 to August 2014.
799-139 Newell Company: Corporate Strategy
program in the Newell corporate culture. The so-called “Newell
University” stressed product focus
and profit-orientation—the underpinnings of Newellization.
Output control:
Newell would bring in new leadership and install its own
financial controller in the acquired unit. Then, three standard
sets of controls were introduced: an integrated financial
accounting system, a sales and order processing and tracking
system, and a flexible manufacturing system. Once these
systems were in place, managers were able to control costs by
limiting expenses to those previously budgeted. Administration,
accounting, and customer-related financial accounting aspects
of the acquired business were also consolidated into Newell’s
corporate headquarters to further reduce and control costs.
Behavioral:
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.
Page 1 on the case
The bonuses were based on division](https://image.slidesharecdn.com/newellvaluechainnewellsdistinctiveresourceswasnewel-221102050941-4db2b75c/85/NewellValue-chain-Newell-s-distinctive-resources-was-Newel-docx-3-320.jpg)
NewellValue chain Newell’s distinctive resources was Newel.docx
- 1. Newell Value chain Newell’s distinctive resources was Newellization, which was the profit improvement andproductivity enhancement process employed to bring a newly acquired business up to Newell’shigh standards of productivity and profit. This process was pursued through a series of broadlyapplicable steps such as the transfer of experienced Newell managers into the acquired company,simplification and focusing of the acquired business’s strategy and the implementation ofNewell’s established manufacturing and marketing know-how and programs, centralization ofkey administrative functions including data processing, accounting, EDI, and capital expenditureapproval, and inauguration of Newell’s rigorous, multi-measure, divisional operating control system. Their fundamental competitive strategy applied to all of their operations and was intendedto differentiate on the basis of superior service to their mass merchandise customers. The superi-or service Newell offered included industry-leading quick response and on-time, in-full delivery,the ability to implement sophisticated EDI tie- ins with its customers extending to vendor-man They then became global and served many customers.Was seen as the “no problem” supplier in the industry as it focused its workforce on efficiencyCentralized administration within the company ensuring efficiencyEnsure that companies it acquired focused on to notch product delivery Does Newell have a successful corporate-level strategy? Does the company add value tothe businesses within its portfolio? They acquired companies that were leading suppliers and had important shelf space in the domesticmarketused a single force
- 2. for selling all products31% return on investment instead of average 18%Newellization would take place= make more efficient business structure of acquisitions to make moremoney and cut costs, centralize administration, cut out unnecessary employess and product delivery time. (3) What is Newell’s functional strategy? What is Newell’s generic strategy? What is Newell’s Organizational Structure? Multi functional - Once these systems were in place, managers were able to control costs by limiting expenses to those previously budgeted. Administration, accounting, and customer- related financial accounting aspects of the acquired business were also consolidated into Newell’s corporate headquarters to further reduce and control costs. However, Newell compensated business managers well for performance. They were paid a bonus based on the profitability of their particular unit—in fact, the firm’s strategy was to achieve profits, not simply growth at the expense of profits. Newell managers could expect a base salary equal to the industry average but could earn bonuses ranging from 35% to 100% based on their rank and unit profitability. Management stressed the goal of creating lean, efficient contributors to the Newell strategy: “If you have an opportunity to make a product line into a profit unit, the Smaller you can make that unit, the more entrepreneurial drive you have.”13 Give one example for each type of Newell’s control systems (personal, output, and behavioral). Personal: Given the potential for rewards, demand for positions at Newell was high. For management-level
- 3. hires the company sought people who would be motivated by success and a lucrative bonus system. Applicants—mostly mid-level executives from other consumer goods companies—were screened for these particular management traits with a personality test and put through an intensive application process that only 1 in 10 passed. Each newly hired company employee underwent a two day training This document is authorized for use only by Nabih Saaty in Spring 2014 BUS 612A-03 taught by Kamal from February 2014 to August 2014. 799-139 Newell Company: Corporate Strategy program in the Newell corporate culture. The so-called “Newell University” stressed product focus and profit-orientation—the underpinnings of Newellization. Output control: Newell would bring in new leadership and install its own financial controller in the acquired unit. Then, three standard sets of controls were introduced: an integrated financial accounting system, a sales and order processing and tracking system, and a flexible manufacturing system. Once these systems were in place, managers were able to control costs by limiting expenses to those previously budgeted. Administration, accounting, and customer-related financial accounting aspects of the acquired business were also consolidated into Newell’s corporate headquarters to further reduce and control costs. Behavioral: 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. Page 1 on the case The bonuses were based on division
- 4. performance alone, and the culture encouraged competition by convening managers for award ceremonies to honor top performers. Stock options, an additional form of incentive made available when the company went public, were granted according to a formula based on salary and position. Historically, the company’s system for evaluating yearly bonuses focused exclusively on pre-tax ROA. The goals were high—beginning at 32.5% pre-tax ROA and reaching the maximum payout at 43.5%— and standard across all divisions. Give three examples of Newell’s organizational culture. early on it became clear that the two businesses were incompatible in terms of differing strategies and corresponding organizational cultures. Newell was a low-cost, high-volume supplier while Rubbermaid was a consumer-oriented innovator that offered premium products. After careful consideration, Newell decided to redefine the newly merged company culture. After two unsuccessful CEO attempts to turn things around, in 2001 Newell Rubbermaid hired Joseph Galli to run the company. He rethought the strategies of both companies and embraced the idea of changing the culture by hiring new kinds of people for a new kind of company. He cut 3,000 jobs throughout the company and made 141 changes at the executive level (vice presidents and above). He introduced new incentive plans and 6-week leadership boot camps to align employees around the new company culture and goals. Did his drastic changes pay off? Since this time and continuing under the new leadership of CEO Mark Ketchum, both revenues and profits are up, and in 2010, Fortune named Newell Rubbermaid the number 7 “Most Admired Company” in the home equipment and furnishings category. This indicates that while the changes he implemented were painful for employees at the time, they did seem to put them on the right track.
- 5. E-Harmony Generic Strategy: The eHarmony company is only using the differentiation strategy as eHarmony only use matching algorithm to match those single individuals for serious relationship. Therefore, they should take consideration in venturing into new markets such as casual daters, gay market and others but not only focus on singles which would limit the potential customers/or create another online dating website for other markets so that serious daters are not mixed together. This can potentially boost the revenue for eHarmony since new markets equals to new customers and increase profitability. Functional Strategy The management team put together and executed a cross- functional strategy that included a redesigned user experience from desktop to mobile, increased technological capacity and a new marketing program. These changes have led to growing numbers of subscribers who stay longer and are willing to pay more than in years past. After putting the company back on course, Dr. Warren then announced plans to expand the company’s current offerings to include nine new verticals aimed at taking eHarmony beyond the online dating industry to become the world’s first relationship company. Now in a growth stage, eHarmony has launched eH+, its premium matchmaking service with plans to launch a beta
- 6. version of a new job matching product in the coming months, establishing two of the nine new verticals projected. VRIO + porter 5 eHarmony’s pricing structure. Chemistry accepts customers using a similar matchmaking methodology as eHarmony, but undercuts the price by 10%. Competitors in the personals industry are in a pricing war that depends heavily on advertising, as an effort to gain more paying customers. Many websites offer matchmaking services for free with minimal restrictions, further undermining the expansion effort of eHarmony. Furthermore, the focus of eHarmony is on psychology, yet physical location is always a crucial factor in relationships. 2 External Analysis of the Personals Industry The 5 Forces framework illustrates competition in the online matchmaking industry: • Rivalry among existing competitors – high there is a pricing war, and each company wants to siphon customers away from other organizations. • Threat of new entrants – high few barriers to entry, and low capital cost. • Threat of substitute products – medium many alternate options for personals. However, few of them have the strict selection criteria as eHarmony. • Bargaining power of suppliers – medium eHarmony has a differentiated matching methodology that no other company can copy. Yet, buyers can find many aspects of matchmaking at other personals; eHarmony wields limited power over buyers. • Bargaining power of buyers – medium customers have the power whether or not to use matchmaking products, and customers can select which one they want. Buyers are restricted by the product / service offerings of suppliers. To a large extent, industry products are standardized, so buyers compare different matchmakers based on price. Buyers have little switching costs; they simply let their prepaid service expire VRIO Again eHarmony’s success is based on the business level strategy employed by the company through which, the company is able to identify its customer base, the services needed, and how to
- 7. satisfy those needs. When eHarmony started in 2001, the customer base was, mainly composed of people seeking serious relationships especially among faith-based communities. Piskorski, Halaburda & Smith write that eHarmony received over 100,000 subscriptions within the first few weeks after launching (4). However, with time, the company was able to expand its customer base to cover a broader customer base especially as a result of massive advertising. By 2004, the company had managed 3 million subscriptions. eHarmony understood that the customers were in search of potential lifetime partners, thus making the company’s match-making process very specific. The customer’s personal interests were analyzed through a matching algorithm that often guarantees personal satisfaction. According to Piskorski, Halaburda & Smith, results from a study conducted in 2005 showed that on average in the United States, members belonging to the eHarmony site married everyday, and by 2007on average, 236 eHarmony members were getting married daily (8). The company continued to strategize in a bid to invent products that would attract more members and retain the current ones. For instance, according to Piskorski, Halaburda & Smith, the company was considering easing some of the restrictions to joining the site, allowing more casual daters, and expanding geographically (13-14).In addition, the company looks to focus more customers’ life events such as weddings, births, parenting, and care for the elderly. Meltdown 1. Explain how the resources and capabilities of Bear Stearns, Lehman Brothers, and AIG respectively affected the Treasury Secretary Hank Paulsen’s approach to intervention? Bear Stearns Bear Stearns have heavily invested in sub-prime mortgages
- 8. or what is commonly referred to as toxic assets. The toxic assets were also being as security by the bank. Bear Stearns had acquired a large number of mortgages which would be used as securities and passed them to investors. As the housing bubble burst, Hank Paulson was concerned that the crisis at Bear Stearns would ravage the whole of Wall Street. This led to the decision that an acquisition was the best intervention for averting a crisis. Consequently, Bear Stearns underwent acquisition by J.P. Morgan. Bear Stearns’ asset base could be used as collateral for obtaining loans. In fact, the real issue at the company was liquidity rather than insolvency (“Frontline,” (n.d)). Lehman Brothers Lehman Brothers’ imminent collapse sent shockwaves to Wall Street. Paulson had invested much of his time and energy to see that the company did not collapse. However, Lehman Brothers lacked collateral against which a bailout plan could be based. Due to the lack of enough resources which could be used as collateral, Fed had no other option but to let Lehman file for bankruptcy. Lehman was seen as insolvent and hence a lot of resources would be required to avert the company’s failure. Thus as much as Paulson tried to avert the company’s failure, the risks were too high. The only solution was thus to declare the company bankrupt (“Frontline,” (n.d)). AIG The decision to bailout A.I.G was reached after an analysis revealed that the company had reasonable collateral to offer. Fed was therefore willing to lend the ailing company in order to avoid bankruptcy. In this case, Fed’s loans to A.I.G. were hedged against the assets of the company. A.I.G. had made significant losses in its credit default swaps unit. Nonetheless, the insurance part of the firm was doing well. Thus it was clear that the real problem at A.I.G. was that of liquidity rather than insolvency. The best option in this case was to provide loans which would enable A.I.G. return to its former financial position (“Frontline,” (n.d)).
- 9. 2. It is possible to combine different ethical approaches? Are moral hazard and systemic risk distinct approaches to ethic? It is possible to combine a variety of ethical approaches in solving a problem. Moral hazard arises when banks or other institutions make reckless decisions when lending since they are aware that they may receive a bailout when faced by a crisis. Systemic risk occurs when the entire system is faced by an imminent collapse or challenge. As such, these are indistinct approaches to ethics because they relate in some way. A moral hazard issue can affect the entire system, which becomes the systemic risk, and hence the two are interrelated. 3. Do innovators (firms in this case that create or use new financial products ) have to take responsibility for the externalities that result from absence of regulatory or legalgovernece mechanisms? Firms that use new financial products should take responsibility for the externalities that arise due to absence of legal mechanisms. In any innovation or new financial product, the firm involved should take responsibility since if there are profits the firm will also likely enjoy alone. Firms should thus take responsibility for any risks that arise including those that may be due to lack of a legal framework. This is important because it can help prevent a moral hazard which arises due to reckless behavior from firms. Walmart
- 10. the Business strategies Wal-Mart uses and how they differentiate their services/products There are 3 generic business strategies and they consist of the Focus strategy, the Differentiation strategy, and Overall Cost leadership. The Focus strategy is usually defined as focusing on offering products and services to a particular market segment or buyer group, within a segment of a product line, and/ or to a specific geographic market. The Differentiation strategy is defined as offering a product or service that is perceived as unique in the marketplace. Wal-Mart‘s business strategy is Overall Cost Leadership, offering their customers great quality service and products at a lower price than their competition. Overall Cost Leadership is defined as offering the same or better quality product or service at a price that is less than what any of the competition is able to do. In achieving this goal it relies on a Supply Chain Management, that ensures products are available to the customers when they it. The items offered are broken down into products and services, products would be privately labeled brands such as, “George, Metro 7, Mainstays and other licensed brands from Disney and Mary- Kate and Ashley”. Services would be that they offer home goods, beauty supplies and seasonal items. - The estimated power each of the 5 forces has (suppliers include their employees and suppliers of technology). How Wal- Mart reduces the buyer and supplier power and how Wal-Mart creates switching costs and entry barriers. The five forces are buyer power, supplier power, threat of substitute products and services, threat of new entrants, and rivalry among existing competitors. Wal-mart follows the five
- 11. forces business strategy Functional strategy: Innovation offering the latest in online innovations to give our customers a unique shopping experience. Wal-Mart Asia, including Wal-Mart China, was also attracting younger consumers through their cell phones. Plans to send customers store information over their cell phones and to encourage the use of Wal-Mart-derived micro-blogs were developed in 2011. Customer responsiveness Whereas in the United States the retailer traditionally focused on electronics and other non-perishables as its key source of revenue, in China Wal-Mart learned how critically important food, cosmetics, package size, variety and store location were to keeping the Chinese consumer buying IDEO What is IDEO’s strategy? How is the organization structured? Simple, Functional or Multidivisional? Functional: innovation To support employee development, Deloitte founded Deloitte University, a campus in Texas that aims to ensure the company
- 12. remains a place where leaders thrive and ideas prosper, in October 2011. Shortly thereafter, Deloitte tapped IDEO to re- envision the Deloitte Lab—until then a series of workshops focused on innovating client relationships. IDEO re-envisioned it as a holistic experience, comprised of a highly-designed lab space, a series of workshops, and a set of tools that would support the incubation of new ideas, the development of leaders, and the prototyping of methods for building client relationships. The project’s goal was to establish a design-thinking environment that would encourage and enable Deloitte staff to experiment, both individually and as a team. Play to Innovation Enabling playful creativity within an organization can lead to a flood of innovation. In our “Play to Innovation” projects and workshops, we rely on practical techniques and academic theory to develop new structures and processes that foster creativity and creative confidence. Toy Invention IDEO Toy Lab has a proven track record of inventing toy and game experiences, such as the Balloonimals app for iPhone. The Lab applies IDEO’s innovation process to this focused area, and it has also developed its own techniques for involving kids in idea generation and prototyping. They do a remarkable job of taking observations and turning them into opportunities and eventually innovations,” is that you innovate by iterating quickly, by having lots of prototypes. Prototyping allows you to learn from risks very quickly.” Generic Business Strategy: differentiation, •Form a diverse team •Team members brainstorm •Team members engage in rapid prototyping •Team members implement the fruits of their labors Generic Business Strategy: focus
- 13. Sharpen the focus. Good brainstormers will get off to a better start—and you can bring people back into the main topic more easily—if you have a well-articulated description of the problem at just the right level of specificity. For example, “spill-proof coffee cup lids” is too narrow and already presumes you know the answer. Another approach, “bicycle cup holders,” is too dry and product-focused. Read more at https://www.ideo.com/work/innovation- labs#3pdxVP9e42Ui0oZ0.99 2. What are IDEO’s control systems? How do they measure their results? Personal, Output and Behavioral? How does it standardize inputs, conversion activities, outputs? Functional:There are some departments → “need areas”, separate divisions -toy. THey are flat but multidivisional. Offices in London and multiple areas. Personal control: adults actually sitting with the teams Output control: time limits since its a messy process and the ideas will build forver so the adilts join in as they mentioned , number of designs, cool and buildable designs, number of design awards Behavioral control: post it notes” one conversation at a time , stay foucused on the topic enocourage bright ideas , build ideas on others people restrain them self from critiquing others ideas and if so they get the bill , use of the bell, u get waild ideas then build over these wild ideas , warming up client before they attend the meeting room so they dont get shocked when they enter the real office when they emplyee throughing baset ballls and darts at each other the place in general is play full as the CEO calls them the crazys this is where the crazys live 3. What is unique about IDEO’s culture? What are their values and norms?
- 14. havior within their organizations. In the top-performing companies it is a norm that colleagues support one another’s efforts to do the best work possible. That has always been true for pragmatic reasons: If companies were to operate at peak efficiency without what organizational scholars call “citizenship behavior,” tasks would have to be optimally assigned 100% of the time, projects could not take any unexpected turns, and no part of any project could go faster or slower than anticipated. But mutual helping is even more vital in an era of knowledge work, when positive business outcomes depend on creativity in often very complex projects. Beyond simple workload sharing,collaborative help comes to the fore—lending perspective, experience, and expertise that improve the quality and execution of ideas. Helpfulness must be actively nurtured in organizations, however, because it does not arise automatically among colleagues. Individuals in social groups experience conflicting impulses: As potential helpers, they may also be inclined to compete. As potential help seekers, they may also take pride in going it alone, or be distrustful of those whose assistance they could use. On both sides, help requires a commitment of time for uncertain returns and can seem like more trouble than it’s worth. Through their structures and incentives, organizations may, however unwittingly, compound the reluctance to provide or seek help. The trickiness of this management challenge—to increase a discretionary behavior that must be inspired, not forced—makes what the design firm IDEO has achieved all the more impressive. Ask people there about the organizational culture, and invariably they mention collaborative help. Observe how things get done, and you see it at every turn. Actually map the networks of help, as we did, and it becomes obvious how broad and dense they are. Clearly the firm is high performing; it is lauded all over the world for innovations in business, government, and health care, and regularly called upon to
- 15. advise other firms that want to increase their innovation capabilities. All this help seeking and help giving apparently pays off. The question for the rest of us is, How has IDEO managed to make helping the norm? Are there principles that leaders of other organizations could learn and apply to similar effect? We spent two years making observations, interviewing people, and conducting surveys to find out. IDEO may seem like a very different kind of company from yours, but it is probably less so than you think. Your organization, too, is full of knowledge workers tackling complex problems. It, too, needs to boost its productive creativity. It could produce better outcomes for customers and provide a more attractive working environment for top talent if your employees, like IDEO’s, engaged in effective mutual help. Let’s look at the four keys to achieving those goals—beginning with a challenge to the people at the very top of the organization. Judging by IDEO’s experience, that is where building a help-friendly company begins.