Many multi-business firms are the sum of their businesses. Though managers have become more advanced in their comprehension of what it requires to attain a competitive advantage at the individual businesses level, it is challenging to create corporate advantage across multiple businesses. However, a few multi-business companies such as Newell have achieved such. This paper aims to examine Newell, a multi-business firm, whose resources are not extremely general or specific, but an attractive conglomeration of both.
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Types and Examples of Controls Newell Uses
Control systems play a crucial role in corporate strategy. In the absence of control systems, the corporate center can hastily lose its capability of determining the corporate strategic direction. Therefore, this will adversely affect performance in individual businesses. Newell has integrated several types of controls that function to minimize production costs hence, maximize profits.
Newell controls costs through outcome controls. Compensation systems tend to be pivotal to control systems. To facilitate transfers, compensation is standardized across divisions, in other words, base salaries are defined by division size and position. However, Newell holds operating units and individual managers accountable for performance, and it rewards excellence. Managers are given bonus payouts of 35% to 100% based on their rank and unit profitability.
Secondly, Newell also has behavioral controls. The behavioral controls are aligned to its strategy. Upon acquiring a new company, Newell brings in new leadership and a financial controller to offer hands-on management supervision. Additionally, introducing new members in the senior positions of acquired companies alters the organizational culture.
Finally, Newell integrates financial controls. The company installs a sales and order tracking system, an integrated financial accounting system, and a flexible manufacturing system. All these systems are put in place to be used by managers to control costs by limiting expenses as compared to that which was previously budgeted.
How the Controls Newell Uses Fit Its Strategy
Several mistakes can occur if the nonfinancial controls are not linked to corporate strategy. For instance, control systems are tied to compensation systems thus a firm’s performance could suffer if managers are being based on non-strategic non-financial outcomes. However, in Newell’s case, the outcome and behavioral controls that it uses fit into its unique strategy. For example, based on the initial Newell’s strategy which was to manufacture high-volume, low-cost products, and distribute and sell to large mass retailers. In behavioral controls, Newell installs new leadership and a new accountant into the acquired unit thus ensuring that the expenses of the production process fall within the required limit. On the other hand, the outcome controls fit into the strategy with regards to paying managers bonuses based on the profitability of an individual unit.
Changes in Controls Newell Made at the End After Adjusting Its Strategy
Newell’s initial strategy was to produce high-volume and low-cost products that would be distributed and sold to several volume merchandisers. However, later on, Newell adjusted its strategy to fit Rubbermaid, the newly acquired company. Rubbermaid was different from other acquired companies as it was highly innovative. Therefore, consequentially, there were changes in control that Newell had to make. This included the integration of non-financial controls. The non-financial controls were essential in tracking elements like customer satisfaction is since Rubbermaid was highly innovative.
There are several key takeaways from Newell’s long-term success. For instance, the corporate strategy is directed by a vision of how a multi-business company creates value. Moreover, corporate strategy comprises a system of dependent parts. Its success depends on both individual elements and how they bolster one another.
Montgomery, C. A., & Gordon, E. J. (1999). Newell Company: Corporate Strategy. Harvard Business School Case 799–139. Published.