Case Study:
Q1) As the executive responsible for business development at Newell, you have decided to purchase Calphalon. Provide reasoning consistent with this strategic decision.
A) Assess the industry attractiveness. (Make sure that you define the industry)
Calphalon is considered as manufacturer of kitchenware and cookware, the acquisition can give Newell the opportunity to extend their cookware brands portfolio to the top of the market and to be one of the leaders in the consumer goods industry. In order to assess the industry attractiveness we should use Porter's five forces model. Since Newell and Caphalon's main buyers are the major retailers and department stores, and also specialty cookware sellers. The bargaining power of these buyers is high due to the availability of substitute products and also due to the need of the companies to have a favorable shelve spaces. Calphalon have used a "pull strategy" to get closer to the end customers, this strategy Calphalon's management were trying to let Newell use to minimize the bargaining power of the buyers. As Newell and Caphalon's uses only basic raw materials in their manufacturing processes, these raw materials are widely available in the market, none of the supplier can have a high bargaining power. Newell and Calphalon are able to switch easily between suppliers to find the appropriate material needed with a suitable price. The rivalry in the consumer goods industry is low to moderate since there is no evidence of any price wars between the sellers. The products made by Calphalon are basic cookware and kitchenware that households find it easy to find a substitute in the market, this make the threat of substitute relatively high. The acquisition of Caphalon and the adaptation of Newellization will make the barriers to entry medium as the Newellization strategy will allow Calphalon adapt economy of scale that new companies will find it hard to compete against.
B)What is the cost of entry to acquire Calphalon?
The acquisition of Calphalon costs Newell about $87.5 million, the cost seems relatively low but if we consider the high SG&A expenses of 26% on average between 1992 and 1997, and the net income of Calphalon's doesn't grow as the sales grow, the price could be high.
C) Is the business better-off? Provide both VRIO and Value Chain Analyses and explain how the acquisition will create value for Newell.
The acquisition will give Newell broader access to the kitchenware and cookware industry, and will allow Newell to increase their existence in the market. Calphalon enjoys many resource and capabilities. First, as Caphalon are using a pull strategy in their sales and as they care about getting closer and having good relationship with the customers "retailers" which will add to the brand equity of the company and increase the value of the brand. This brand value is valuable for the company but it's not rare in the market as there is many other manufacturer who posses the same brand value. The products that Calphalon manufactures are simple cookware and kitchenware with a relatively high price for the consumers, the kitchenware industry have many players who provide similar products. If we look at the financials of Calphalon and the products they have we can say that the acquisition will not provide value for Newell, so the business isn't "better off". Another reasons for saying that the acquisition wasn't a good idea is that Newell and Calphalon doesn't share the same supply chain management systems and distribution channels and the expenses for Calphalon were higher in a way that make it hard for Newell to adapt the Newellization strategy. To conclude the acquisition will provide competitive disadvantage for Newell.
A) What is Newell's generic strategy?
Newell's generic strategy is to produce high volume with different categories (good, better and best). This strategy allow Newell to differentiate their products and give them the ability to acquire major shelf space in the retail markets.
Newell's organizational structure is considered a "multidivisional" structure. Each division responsible for applying the company's strategy, and each division have the responsibility to make profits for the company. The top management of Newell strictly review the divisions profitability every month. This structure allows Newell to successfully implementing the low-cost, mass-retailer strategy.
B) Give one example for each type of Newell's control systems (personal, output,).
In the personal level, the company rewards the top management depends on the performance, that's why everyone in the company is seeking having a managerial position at the company. The hiring process is competitive and it requires a two day training and only one person out of 10 can pass the test and requirements.
Output control system:
The adaptation of "Newellization" strategy is essential for any acquired company by Newell. The strategy worked on the financial accounting system, sales and tracking system, and also the manufacturing processes. This allow Newell to fully control the newly acquired company and ensure that it works under the strategy of the company. The Newell headquarter have the ability to control every financial, and customer related aspects of the acquired company.
C) Give three examples of Newell's organizational culture.
Newell organizational culture was built around challenges and competition and also rewarding. The base salary Newell paid was like the industry average but there was some incentives paid to the employees depending on the division and its performance and profitability. The company is holding a yearly ceremony rewarding the top performers in the company, such norm can help the company benefit by having inside competition between the divisions who can generate more profit for the company, and also within the division itself, the employees will be motivated to work harder to get rewarded. Also to maintain the company's profitability, the management were reviewing the financials of the divisions every month, this creates sense of responsibility to the division managers so they can maintain the performance that will benefit the company in the end.
Q3) A)What is Wal-Mart's functional strategy?
Cost-efficiency was the strategy that Wal-Mart adapted. They were successful in this strategy as their expenses percentage of the total sales was among the lowest in the industry. This strategy allowed Wal-Mart to satisfy their customers by providing low prices every day.
B) What is Wal-Mart's generic business strategy?
The generic strategy for Wal-Mart is cost-leadership, this strategy is implemented by the EDLP strategy that give the customers the chance to enjoy low prices every day without the need to wait for seasonal offerings. This strategy have benefited Wal-Mart by saving the cost of marketing for any sales events by just promising customers to have low prices any time, and by this they were able to keep their customers from looking for cheaper goods in other retailers.
C) What global strategy did Wal-Mart use to enter China? What was different about the US market? (Hint: provide a Porter's competitive advantage of nations framework for the USA)
First let's take a look to the porter's competitive advantage of nations for Walmart in the U.S market. Number of attributes have impacted the success of Wal-Mart in the U.S. market. Wal-Mart have enjoyed the availability and the quality of the basic factors of production such as labor, land and logistics. Wal-Mart has more than 1.2 million workers in the U.S who have the minimum required skill to work for the giant retailer, even if Wal-Mart want to expand their operations they will find it an easy job to hire more workers. The easiness of transporting goods in the U.S made it easy for Wal-Mart to have an advanced supply chain management that can respond quickly to consumers' demands. The U.S consumers enjoy a high income per capita which make their purchasing power high enough to pursue Wal-Mart to expand their operations in the U.S, especially with the everyday low price Wal-Mart provides, they are able to satisfy their target customers who are the middle to low income class.
Walmart entered the Chinese market by using "expansion through acquisition" strategy. This was done at Walmart first time entered China, the strategy wasn't so successful and it didn't help Walmart to apply their favorite EDLP strategy easily without encountering high cost. They later expanded in the Chinese market by opening new store formats.
Walmart tried at first to apply the same store format they use in the U.S in China. But due to cultural differences this wasn't a good idea. The first difference between China and USA was the culture, as the Chinese consumers shop for food and perishable items more than any other items like digital and electronics which is the number one source of revenue for walmart in USA. the second obstacle walmart face was the economic conditions for the Chinese customer, as the purchasing power of the chinese are not similar to the americans. The other obstacle was political, Walmart have had a lot of issues with the chinese government that led to Walmart got sued many times. The lesson learned from the Walmart experience in China is that they should have studied the market very well or do what Carrefour did by going to Taiwan first before entering China.
Q4) What is Lisa Harris' preferred financial statement?
Lisa preferred the balance sheet. she does not want to see income statement like others because she wants to see the heath of the company. She wants to see how much asset, equity and debt the company has and for how long it will last.