Home Depot Structure Analysis
Length: 1713 words (4.9 double-spaced pages)
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The Article, "Renovating Home Depot," describes how, since the arrival of the new Chief Executive, Robert Nardelli, the business strategy has shifted to a more militaristic style. In the beginning, Home Depot was a "decentralized, entrepreneurial" business, and now is switching to a different management style. Nardelli loves to hire ex-soldiers, and is perhaps using the armed services as a role model for the new business structure. Under Nardelli's leadership, Home Depot is becoming more centralized and the good financial reports following this are signs that it a good strategy (Grow 50).
The article centers on the leadership of Home Depot's Chief Executive Officer Robert L. Nardelli. He was born May 17, 1948, in Old Forge, Pennsylvania. He received his Bachelor of Science in business from Western Illinois University, and also earned an MBA from the University of Louisville.
Mr. Nardelli joined GE in 1971 as an entry-level manufacturing engineer. By 1995, he had risen to president and CEO of GE Power Systems, also having the title of GE senior vice president. In 2000 he left GE, and about 10 minutes after leaving he received a job offer from a member of the board of Home Depot.
Nardelli became CEO of Home Depot in December 2000 despite having no retail experience. Using the "Six Sigma" management strategy from GE, he dramatically overhauled the company and replaced its freewheeling business process. He changed the decentralized management structure, by eliminating and consolidating division executives. He also installed processes and streamlined operations, which implemented a computerized automated inventory system and centralizing supply orders at the Atlanta headquarters.
Nardelli started making the company look and feel like an army. He loved to hire soldiers, because they were already trained with the discipline that he felt necessary to run a successful business. Implementing military ideas was a key factor in Nardelli's plan to reshape Home Depot and make it a more centralized organization.
Revenue increased from $45.7 billion in 2000 to $81.5 billion in 2005, while profits rose from $2.6 billion to $5.8 billion. While this was a slower growth rate than Home Depot had experienced in the past, it was because past growth was due to the company's rapid expansion. Some board members criticized him for not maintaining the growth that the company had previously experienced, but Nardelli never wavered from his strategy. He always believed in running a business with a command-and-control type of structure. He used a functional structure in which he made all major decisions and monitored all activities while the staff just served as an extension of the management. This is not how the company was run in the past, and it made some of the Home Depot board members nervous. His ambition also drove him to expand the service component of the organization. This was stretching the company strategy into a whole new area in which Home Depot was not familiar.
In 2005 the company experienced stagnating share prices, which accompanied with the critical and autocratic management style, turned off employees and angered the investors. In 2006 questions about his leadership mounted criticism about his behavior caused the board to get rid of him in January of 2007. Home Depot replaced him with Vice Chairman and Executive Vice President Frank Blake. Blake had served as Nardelli's deputy at both GE Power Systems and Home Depot.
There are three main structures used within businesses; simple structure, functional structure, and multidivisional structure. Simple structure is mainly used in smaller businesses, and is categorized by the head of the company making all of the decisions and with all employees taking direction from the company head. In the functional structure the company maintains a CEO with a small corporate staff along with managers in organizational areas such as production, accounting, marketing, R&D, engineering and human resources. Separating the organizational areas of a company allows for specialization in each functional area. However, this separation can have a negative effect as it makes communication between these areas more difficult. The multidivisional structure consists of different divisions which represent separate businesses which corporate officers dictate responsibilities to. This allows officers to monitor each businesses performance more effectively. Officers can easily compare divisions and help improve the performance of a poorly performing division.
Home Depot's largest competitors are Lowe's, Ace Hardware and more locally, Menard's. Although these stores all carry similar items, they each differ in their strategy of attracting customers. Ace Hardware differs the most from the three as they are much smaller in size and therefore focus most on being customer friendly. Menard's is a privately held company which does not release its finances publicly, but is believed to be the third largest home improvement retailer in the United States, despite having locations in only eleven states. Menard's is similar in size and structure to both Lowe's and Home Depot. One of our group members happens to work at Lowe's, Home Depot's largest competitor and second largest home improvement retailer. This has given us some insight as to how they try to set themselves apart from Home Depot. Like Home Depot, Lowe's has a functional structure following a cost leadership strategy. Lowe's shows cost leadership by their low price guarantee, where they will beat any competitors price by 10% on any in stock product. Lowe's also uses a differentiation strategy to separate themselves from Home Depot by trying to appeal more to women, with the thought that women make most home design decisions. It is believed within the company that Lowe's stores are cleaner and that their blue and red colors are more welcoming than Home Depot's bold orange and black. They are also very customer focused by having "expert" employees who can give customers the knowledge needed to do projects themselves, shown by their "let's build something together" advertisements.
When Home Depot CEO Robert Nardelli resigned they named Frank Blake as his successor. Currently, Home Depot maintains a functional structure similar to the one implemented by Nardelli. However, as the new CEO Frank Blake has made several changes within the corporation. First, he replaced many top managers and discontinued daily catered meals for top management--instead sending them to cafeteria and buy their own lunch. The Board of Directors also approved the sale of Home Depot's supply division to increase shareholders value. HD supply was eventually sold on Aug. 28, 2007, for $8.5 billion.
After refreshing his top management team, Frank Blake hired many new employees and trained them to provide the best service to customers. Blake believed this would return some loyal customers back to Home Depot. He also decreased his base salary to $975,000 and limited possible bonuses and add-ons to $8 million, which depend on performance. Blake is also tried to improve top manager's morale, which was low after the strict store quotas from Nardelli. Blake said that he would not fire the remaining managers if they did not meet certain financial goals.
Blake tried to make peace with the enemies of his predecessor by inviting David Batchelder of Relational Investors to join company's board and hiring the Lehman Brothers for advice over HD supply. Blake has reintroduced the "Inverted Pyramid, which lays out the retailer's hierarchy, with customers and employees above the chief executive on the bottom". He is trying to distance himself from Nardelli and bring back the Home Depot that customers used to know.
The new Home Depot is trying to distance itself from a cost leadership business strategy and move closer to differentiation strategy. When Frank Blake became the new CEO of home depot, during his presentation to Merrill Lynch, he said "the key to Home |Depot's strategy is quality customer service delivered by knowledgeable professionals". To reinforce this quality of customer service, he is trying to launch a new program to hire some skilled professionals or "master trade specialists". He is also trying to renew the emphasis on training which he blames for eroded retailers reputation among customers.
Blake has given all staff members radios to respond to customer pages. If an associate has not responded to the customer request within a minute a notice is sent to the district manager and the incident is recorded. Blake is using this tool to ensure that every employee is reinforcing the quality customer service people expect. Another way that Home Depot is trying to differentiate itself is through the use of family programs such as Kid's Corner. Children can visit a Home Depot on the first Saturday of every month and participate in a project supervised by employees. The kids have their own orange aprons and are made to feel a part of the Home Depot team. Along with the family friendly theme is Home Depot's eco label program. Home Depot label's over 3,000 products to inform customers about products that will help conserve energy, conserve the forests and keep our waters clean (Barbaro). Blake envisions Home Depot in the future as "clean, uncluttered, well stocked stores with friendly, knowledgeable clerks to help you through your home improvement project". He also plans to have a greater presence in the international market.
Barbaro, Michael. "Home Depot to Display an Environmental Label ." New York Times 17Apr2007 08Mar2008 .
Grow, Brian, Diane Brady, Michael Ardnt. "Renovating Home Depot." Business Week 3974(2005): 50.
Howell, Debbie. "Home Depot strategy marked by rampant acquisition." DSN Retailing Today 12June2006 16FEB2008 .