Leadership Analysis Of Robert Nardelli
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This section presents a brief overview of his personal and professional life. Robert L. Nardelli was born on May 17, 1948 in Old Forge, Pennsylvania. He completed his Schooling in the State of Illinois and earned Masters in Business Administration from University of Louisville. Nardelli started his professional career at GE where he worked for 27 years. Nardelli served as the head of GE's Canadian appliance unit. Later, he headed the transportation systems division. He thus rose to become one of the top four executives in GE. A lengthy succession plan ensued when Jack Welch was leaving GE and Nardelli was in the race towards becoming the CEO of the company. However, after losing the CEO spot to Jeff Immelt, he exited the company.
Then, Nardelli took over as CEO of the home retailer Home Depot in 2000. Nardelli brought discipline to Home Depot but the shifting of gears was shocking to a lot of people who were well accustomed to his predecessor Bernie Marcus’ laid-back style. By many benchmarks, including sales, gross margins, and profits, Bob Nardelli did a fairly good job at Home Depot. However, Nardelli came under fire and extreme criticism for his gargantuan compensation package relative to the stock's weak performance, slowing profits and a regulatory probe about its options practices, and his management style. Also, Home Depot had to fight growing competition from Lowe’s and it needed to reinvigorate growth in the U.S. market and boost overseas growth. Finally, Nardelli stepped down and exited the company at the beginning of 2007.
Later, in August of 2007, he was brought on board by Chrysler soon after it was purchased by the private equity firm Cerberus. After the acquisition, the company turned to the leadership of Nardelli as the business required a leader who would follow the plan and stick to the numbers.
Nardelli’s leadership style can be described as being “task oriented”, “directive” and “autonomous” and “autocratic”. Let us analyze his style when he was the CEO in Home Depot. His tenure at the company was marked with heavy-handedness and inflexibility. Almost immediately after Home Depot snared Nardelli, he embarked on an aggressive plan to centralize control. He neglected the touchy-feely stuff, enthusiasm of his people, a sense of humility before his board, the care of his shareholders. He was maniacal about goals, objectivity, accomplishments within the boundaries of the values of the company. He invested heavily in technology. He also wanted to virtually measure everything in the company and hold top managers strictly accountable for meeting the numbers.
He ran the company efficiently for six years. However, the growth slowed down. At the same time, Lowe's enjoyed a far better reputation. It had a more appealing store design and women shoppers endorsed it. Better customer service, customer experience, and personalized product offerings gave Lowe’s stores the competitive advantage which eventually moved it directly onto Home Depot turf. Nardelli’s reign at Home Depot was characterized by the “callous” and “inflexible” management style. Nardelli was brought in when the company needed to focus on the cost side of the equations when sales were growing. However his reputation suffered when Home Depot's smaller archrival, “Lowe's Companies, soared more than 200% since 2000, while Home Depot's shares declined 6%”, according to Bloomberg data. The retail organization never really embraced his leadership style. The company needed a more innovative and constructive leadership.
Let us now take a close look at his leadership at Chrysler. Chrysler has long been suffering from an undisciplined leadership style and it needs a situational leader to return to a profitable track. Situational leadership suggests that situations call for different leadership styles. Therefore, it installed the leadership of Bob Nardelli with the hope that it will help the company shake up Chrysler. We all know that Chrysler is in need of a painful and drastic change. At the now privately held Chrysler, Nardelli's brand of management science and military leadership style may be just what Chrysler needs. In my opinion, his directive style seems appropriate. A former operations whiz at GE can bring new managerial discipline to Chrysler, and make the struggling Detroit automaker survive.
Leaders may have a style that suits them to some circumstances better than others. Nardelli clearly performed well at Home Depot. When it came to measures like profitability, his style was paying off. His autocratic style improved hardware retailer's efficiencies but damaged employee morale. When he neglected the touch-points of the business, teamwork and people, they all came back to bite him.
Leadership effectiveness and Organizational Results
Let us look at some of the outcomes of his leadership effectiveness during his six-year stint at Home Depot. Nardelli was clearly able to deliver profits while trimming the costs. Under his tenure, the company made vital investments that improved the infrastructure and operations. As a result, the company delivered strong and consistent growth. Primarily driven by a housing and home improvement boom, sales figures soared from $46 billion in 2000, the year Nardelli took over, to $81.5 billion in 2005. Profits more than doubled, to $5.8 billion that year. However, during the current housing slowdown, the financials eroded. In the third quarter of 2006, same-store sales at Home Depot's 2,127 retail stores declined 5.1% (Source: Business Week).
Stock prices did not improve much since Nardelli took charge at the Atlanta home-improvement retailer in December, 2000. Home Depot's stock traded at just under $37 per share. After the news of Nardelli's exit, investors bid up Home Depot's stock nearly 4%, before it settled back, finishing 2.3% higher at $41.07 in trading on the NYSE (Source: Business Week). Under Nardelli's reign, Home Depot successfully cut costs and improved financial metrics. However, service quality and excessive compensation were among critics' points of contention, and as a result, Home Depot’s share price languished since he took over as CEO in 2000. His reputation as an effective leader was tarnished by his stint at Home Depot.
Results are important in leadership. Business leaders also need to pay attention to soft organizational skills: intangible leadership, organization, and people stuff. The previous section clearly indicated that Robert Nardelli improved financial metrics. However, he failed to codify what he learned in the past at GE. He should have adapted the principle behind the experience he acquired to appropriately respond in the situation.
He is reputed to be high-handed and authoritarian. Private Equity relies heavily on having a vivid plan for the recovery of investments. Though his style is controversial, the pattern of his behavior may fit well for asset management in Cerberus and Chrysler.
Followers’ attitude towards the leader
Before Nardelli came onboard, the managers of Home Depot had enjoyed independence under the laid-back entrepreneurship leadership style of Bernie Marcus. Home Depot was a haven for independent-minded employees. When Nardelli came in with new ideas for change, the employees did not have the desire for transformation since they did not feel the need for change and their morale was good. He believed that managing by metrics was the best way to guarantee fairness in judging a person’s performance. When Nardelli acquired control, the store managers felt that they lost their autonomy and independence. This led to the failure of unification of commitment and enthusiasm of his followers.
Also, Home Depot's success sharing program which pays out bonuses primarily to Home Depot's non-salaried employees based on store financial performance fell from $90 million in 2004 to $44 million in 2005. Yet Nardelli's total bonus, which is also based on overall company performance, rose from $5.75 million in 2004 to $7 million in 2006 (Source: Business Week). This irked the employees and the shareholders. His faltering strategy and steep pay led the shareholders to openly revolt and finally led to his exit in January of 2007.
Where he is now
Nardelli was elected to the Chrysler board on August 3, 2007. He was then appointed the chairman and CEO of Chrysler. Though he does not carry any automobile experience in his leadership portfolio, Nardelli’s characteristics of the tough-minded leader and financial acumen are necessary to meet the short-term financial objectives of Cerberus. He certainly brings a potent change to the U.S maker that is crippled by the dysfunctional culture. However, in the long run, it is certainly a great challenge for Nardelli to create that paradigm shift needed to achieve the turnaround at Chrysler.