#637 1971 · Kimberly-Clark · Consumer packaged goods / paper manufacturing
Kimberly-Clark's new CEO sold the company's own namesake paper mills to force a fight it couldn't retreat from
the problem
A slow-declining core business quietly drains the cash and attention a faster-growing one needs to compete
background
By the late 1960s Kimberly-Clark's core business was coated paper — the commodity mills, including the company's own founding mill at Kimberly, Wisconsin, that gave the company its name. The mills were profitable but structurally declining, competing on price in a business with no brand and no growth. Meanwhile Kimberly-Clark also held a consumer paper products arm — Kleenex, Kotex — facing Procter & Gamble, a much larger competitor that could outspend it on marketing while Kimberly-Clark's capital and management attention stayed split between defending the old mills and building the new brands.
Darwin Smith, a Harvard-trained lawyer with no paper-industry background, became CEO in 1971. The conventional move for a company caught between a declining core and a promising but underfunded new line was diversification or a gradual, hedged pivot — keep the mills running for cash flow while slowly growing the consumer side. Smith concluded that as long as the mills existed as an option, they would keep drawing capital and attention away from the fight that actually mattered.
what everyone would do
Diversify or hedge gradually -- keep the declining paper mills running for their steady cash flow while slowly growing the consumer products side alongside them -- the conventional response to a company caught between a declining core business and a promising but underfunded newer one.
what they saw
Smith saw that as long as the mills existed as a fallback, they would keep drawing capital and management attention away from the consumer-products fight that actually mattered, even if no one at the company consciously chose to underfund Kotex and Kleenex -- the mere existence of the safer option would keep pulling resources toward it during any hard year. Removing the fallback entirely, not funding the new bet more generously, was what would force the organization to make the harder bet work.
the move
Within roughly a year of taking over, Smith sold or closed six paper mills, including the company's own namesake mill in Kimberly, Wisconsin, and sold more than 300,000 acres of timberland — divesting the majority of Kimberly-Clark's traditional revenue base outright rather than diversifying around it. He poured the proceeds into research and marketing for Kotex and Kleenex, then pushed the company head-on into disposable diapers against P&G's Pampers with Huggies, leaving no commodity-paper business left to retreat to if consumer products failed.
why it works
By selling or closing the majority of the company's traditional revenue base outright, Smith eliminated the option of retreating to commodity paper if the consumer-products push struggled, which meant every subsequent resource and attention decision inside the company had nowhere to go but toward making Kotex, Kleenex and eventually Huggies succeed. The years of depressed profits and write-downs that followed were the direct cost of removing the hedge, but with no fallback business left to prop up short-term numbers, the company's full capital and management focus went into building brands that could actually compete with -- and eventually beat -- Procter & Gamble.
the payoff
Wall Street and the trade press called the move stupid at the time, and large write-downs depressed profits for several years. Kimberly-Clark's stock went on to outperform the broader market and rivals including 3M, Coca-Cola and GE over Smith's twenty-year tenure; Huggies overtook Pampers as the top-selling disposable diaper, and in 1995 Kimberly-Clark acquired its former rival Scott Paper for $9.4 billion, beating Procter & Gamble in six of eight product categories.
where it breaks
This approach only works if the new bet is genuinely viable with full resourcing and full focus -- burning the fallback before the new business has a credible path to standing on its own risks total failure with no safety net left to catch it, rather than the forced success Kimberly-Clark achieved. It also requires the leader to have enough authority and conviction to survive the multi-year period of depressed results and public criticism the sale produces before the new bet has time to pay off, a period long enough that a board, activist investor, or impatient leadership team could remove the person making the bet before it's vindicated.
what came after
Jim Collins made Darwin Smith the opening case study of Good to Great and its 'Level 5 Leadership' concept, and the mill sale is still taught as the canonical example of a leader removing an organization's fallback option to force a full commitment to a harder, higher-upside bet.
references
- [1]Kimberly-Clark: From Commodities to Powerhouse BrandsAmerican Business History Center, 2023americanbusinesshistory.org
- [2]Level 5 Leadership: The Triumph of Humility and Fierce ResolveHarvard Business Review (by Jim Collins), 2005hbr.org