Paper Renovating Home Depot free essay sample

The big-box store is thriving under CEO Bob Nardellis military-style rule | Five years after his December, 2000, arrival, Chief Executive Robert L. Nardelli is putting his stamp on what was long a decentralized, entrepreneurial business under founders Bernie Marcus and Arthur Blank. And if his company starts to look and feel like an army, thats the point. Nardelli loves to hire soldiers. In fact, he seems to love almost everything about the armed services. The military, to a large extent, has become the management model for his entire enterprise. Of the 1,142 people hired into Home Depots store leadership program, a two-year training regimen for future store managers launched in 2002, almost half, 528 are junior military officers. More than 100 of them now run Home Depots. † It’s one thing to have faced a tough customer. Its another to face the enemy shooting at you. So they probably will be pretty calm under fire. We will write a custom essay sample on Paper Renovating Home Depot or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Nardelli is a detail-obsessed, diamond-cut-precise manager who, in 2000, lost his shot at the top job at General Electric Co. Overall, some 13% of Home Depots 345,000 employees have military experience, vs. 4% at Wal-Mart Stores Inc. Importing ideas, people, and platitudes from the military is a key part of Nardellis sweeping move to reshape Home Depot, the worlds third-largest retailer, into a more centralized organization. That may be an untrendy idea in management circles, but Nardelli couldnt care less. Its a critical element of his strategy to rein in an unwieldy 2,048-store chain and prepare for its next leg of growth. The kind of discipline and maturity that you get out of the military is something that can be very, very useful in an organization where basically you have 2,100 colonels running things, Rivals such as Wal-Mart are plunging deeper into home improvement products, while archenemy No. 1, Lowes Cos. is luring Home Depot customers to its 1,237 bright, airy stores. Even as other companies seek to stoke creativity and break down hierarchies, Nardelli is trying to build a disciplined corps, one predisposed to following orders, operating in high-pressure environments, and executing with high standards. The cultural overhaul is taking Home Depot in a markedly different direction from Lowes, where managers describe the atmosphere as demanding but low-profile, collaborative, and collegial. Lowes does not have formal military-hiring programs, nor does it track the number of military veterans in its ranks. Observes Goldman, Sachs Co. analyst: Bob believes in a command-and-control organization. In Nardellis eyes, its a necessary step in Home Depots corporate evolution. Even though founders Marcus and Blank were hardly a pair of teddy bears, they allowed store managers immense autonomy. Whether it was an aisle, department, or store, you were truly in charge of it, says former store operations manager and Navy mechanic Bryce G. Church, who now oversees 30 Ace Hardware stores. And the two relied more on instincts than analytics to build the youngest company ever to hit $40 billion in revenue, just 20 years after its 1979 founding. In the waning years of their leadership in the late 1990s, however, sales stagnated. The company grew so fast the wheels were starting to come off,† These days every major decision and goal at Home Depot flows down from Nardellis office. Theres no question; Bobs the general, Although he has yet to win all the hearts and minds of his employees, and probably never will, Nardellis feisty spirit is rekindling stellar financial performance. Riding a housing and home-improvement boom, Home Depot sales have soared, from $46 billion in 2000, the year Nardelli took over, to $81. 5 billion in 2005, an average annual growth rate of 12%, according to results announced on Feb. 21. By squeezing more out of each orange box through centralized purchasing and a $1. 1 billion investment in technology, such as self-checkout aisles and in-store Web kiosks, profits have more than doubled in Nardellis tenure, to $5. 8 billion. Home Depots gross margins inched up from 30% in 2000 to 33. 5% last year. But fast-growing Lowes is still Wall Streets darling, in large part because analysts are only now getting comfortable with Nardellis strategy. CULTURE OF FEAR Nardelli has pushed his cultural makeover hard in the five years since he has been at the helm. But not all have embraced him, or his plans. BusinessWeek spoke with 11 former executives, who describe a demoralized staff and say a culture of fear is causing customer service to wane. Before he arrived, managers ran Home Depots stores on tribal knowledge, based on years of experience about what sold and what didnt. Now they click nervously through BlackBerrys at the end of each week, hoping they made plan, a combination of sales and profit targets. The once-heavy ranks of full-time Home Depot store staff have been replaced with part-timers to drive down labor costs. Underperforming executives are routinely culled from the ranks. Since 2001, 98% of Home Depots 170 top executives are new to their positions and, at headquarters in Atlanta, 56% of job changes involved bringing new managers in from outside the company. As a manager, Nardelli is relentless, demanding, and determined to prove wrong every critic of Home Depot. He treats Saturdays and Sundays as ordinary working days and often expects those around him to do the same. The military, says Nardelli, trains its recruits to be leaders and think on their feet, skills he wants in Home Depot stores. I just think these are folks who understand the importance of training, understand the importance of youre only as good as the people around you. Indeed, the Home Depot of Bob Nardelli is being run with military-style precision. These days everyone at Home Depot is ranked on the basis of four performance metrics: financial, operational, customer, and people skills. The company has placed human resources managers in every store, and all job applicants who make it through a first-round interview must then pass a role-playing exercise. Dennis M. Donovan, Home Depots executive vice-president for human resources and a GE alumnus, measures the effectiveness of Home Depot workers by using an equation: VA = Q x A x E. Its meaning? According to Home Depot, the value-added (VA) of an employee equals the quality (Q) of what you do, multiplied by its acceptance (A) in the company, times how well you execute (E) the task. The goal is to replace the old, sometimes random management style with new rigor. While Nardelli is careful to say that the military is just one pipeline of talent into Home Depot, the company also recruits senior citizens and Latinos through four Hispanic advocacy groups. Now, with Lowes and Wal-Mart picking off Home Depots customers, Home Depot is moving quickly to whip the troops into shape. What worked 20 years ago may not work today. Its as simple as warfare. We dont fight wars the way we used to. SIMPLE SLOGANS To win the customer service war, Home Depot has adjusted its tactics. Home Depot plans to roll out a 25-page booklet dubbed How To Be Orange Every Day. All store employees will be expected to keep it in their apron pocket. It contains aphorisms such as customers cannot buy what we do not have, we create an atmosphere of high-energy fun, and every person, penny and product counts. It is expected that such simple slogans will help shore up Home Depots once-vaunted customer service. They recall the four basic responses to an officers question in the Navy: Yes, sir; No, sir; Aye, aye, sir; and Ill find out, sir. It is seen as an effort to align all Home Depot workers on the same page when it comes to serving customers. I think about that line from A Few Good Men when Jack Nicholson says: Are we clear? and Tom Cruise says: Crystal . A former executive says that Nardellis effort to measure good customer service, instead of inspiring it, is to blame: My perception is that the mechanics are there. The soul isnt. Home Depot executives add that internal polling shows customer satisfaction is improving, but they wont release complete resul ts. They point to Harris Interactives 2005 Reputation Quotient, an annual 600-person survey that combines a range of reputation-related categories, from customer service to social responsibility. The survey ranked Home Depot No. 12 among major companies and reported that customers appreciated Home Depots quality service. Some of the same former managers who blame Nardellis hardball approach for corroding the service ethic at Home Depot describe a culture so paralyzed with fear that they didnt worry about whether they would be terminated, but when. COMMAND OF DETAILS Still, its hard even for Nardelli critics, including ones he has fired, not to admire his unstinting determination to follow his makeover plan. But some of them question his business model (squeezing efficiencies out of the core business while buying up new businesses) can work in a retail environment where taking care of customers is paramount. Bob has brought a lot of operational efficiencies that Home Depot needed, says Steve Mahurin, But he failed to keep the orange-blooded, entrepreneurial spirit alive. Home Depot is now a factory. Can his plan work? Ab-so-lute-ly, says Nardelli. This is the third time this business model has been successful. He rejects the idea that he has created a culture of fear. The only reason you should be fearful is if you personally dont want to make the commitment, says Nardelli. â€Å"He says Home Depot is dealing with the challenges of being a more centralized company just fine. And he makes no apologies for laying off the ranks of underperforming store workers and executives to achieve aggressive financial objectives. We couldnt have done this by saying, Run slower, jump lower, and just kind of get by, insists Nardelli, hardening his gaze. So I will never apologize for setting the bar high. Questions: 1. Compare Home Depot under Nardelli’s leadership and under the Markus and Blank leadership. What has changed? List main features of both leadership styles with its main advantages and disadvantages. 2. To what extent can we find elements of the classical management approaches in Home Depot under Nardelli’s leadership? Comment on the formula â€Å"VA = Q x A x E† to measure employee’s effectiveness. Be specific when relating to theories / authors. 3. List Home Depot stakeholders and indicate how they have been impacted by Nardelli’s new company’s culture. How each stakeholder has been impacted? Who are the beneficiaries? Who has been impacted negatively? Be specific. Paper renovating Home Depot Question 1: Compare Home Depot under Nardelli’s leadership and under the Markus and Blank leadership. What has changed? List main features of both leadership styles with its main advantages and disadvantages. The main features of the leadership of Markus and Blank were: â€Å"laid-back†, â€Å"independent†, †supportive† and â€Å"participative† Advantages: Their employees were happy with the way they were allowed to work. The store managers had a lot of independence in running their stores. A respected and customer friendly atmosphere in the store. Disadvantages: With these styles they weren’t able to let the store grow bigger financially. The main features of the leadership of Nardelli were: â€Å"task oriented†, â€Å"directive†, â€Å"autonomous†, â€Å"inflexible† and â€Å"autocratic† The advantage of this styles are that he had a good overview over his company and that he was able to make more financial growth. Disadvantages: He neglected the enthusiasm of his people with being too strict. By only wanting to make the store grow bigger he didn’t paid much attention to the importance of the customers and his customer service. What has changed? What has changed the most were the differences in leadership styles of Nardelli and Markus Blank. The employees were used to a more laid-back and independence style of leading from Markus, but when Nardelli came he had new ideas for change. Nardelli believed that managing by metrics was the best way to guarantee fairness in judging a person’s performance. He wanted control, however 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. Question 2: To what extent can we find elements of the classical management approaches in Home Depot under Nardelli’s leadership? Comment on the formula â€Å"VA = Q x A x E† to measure employee’s effectiveness. Be specific when relating to theories / authors We can find elements classical management approaches in his leadership in a couple things. Like administrative and bureaucratic. Controlling for instance. 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. With this investment he was able to measure performances and could take action to ensure desired results. We can also find a lot of organizing. The book How to be orange everyday is a good example. With this book he wanted to arrange his people to accomplish the work. And by leading the company with a military approach he wanted to get as much as organized as he could. Quote: The kind of discipline and maturity that you get out of the military is something that can be very, very useful in an organization where basically you have 2,100 colonels running things, The formula: â€Å"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. †(Howell, Debbie) â€Å"Some of the same former managers who blame Nardellis hardball approach for corroding the service ethic at Home Depot describe a culture so paralyzed with fear that they didnt worry about whether they would be terminated, but when. †( Grow, Brian, Diane Brady, Michael Ardnt. ) Relating to Debbie Howell his leadership was very effective to get his employees work hard and deliver a great success to the company’s growth. The quality of what they did and the way they executed must have been really good. However I think they sometimes felt not so accepted while there was a lot of pressure to succeed. Question 3: List Home Depot stakeholders and indicate how they have been impacted by Nardelli’s new company’s culture. How each stakeholder has been impacted? Who are the beneficiaries? Who has been impacted negatively? Be specific. Employees Shareholders Community I think they all have been impacted by his new company culture because the former owners had a very different way of leading than he had. There must have been some change for every stakeholder. His military way has definitely impacted all of them but of course in their own way. Employees have been impacted by his new culture in losing their independency and had to follow strict rules under a high pressure of good performance. Who feared losing their jobs. The shareholders first gained more profit form the financial growth but his last year was less profitable. Bob has brought a lot of operational efficiencies that Home Depot needed, says Steve Mahurin, chief merchandising officer at True Value Co. and a former senior vice-president for merchandising at Home Depot. But he failed to keep the orange-blooded, entrepreneurial spirit alive. Home Depot is now a factory. (Howell, Debbie). The community including customer also suffered of his changes in customer service. â€Å"Nardelli has pushed his cultural makeover hard in the five years since he has been at the helm. But not all have embraced him, or his plans. BusinessWeek spoke with 11 former executives, who describe a demoralized staff and say a culture of fear is causing customer service to wane. †(Bu sinessweek) The beneficiaries were the shareholders who had a higher dividend because of the big financial growth but later on they were also treated negatively because of the stagnating numbers in his last year. The Board of Directors also approved the sale of Home Depots supply division to increase shareholders value. † The ones who have been impacted most negatively were the employees. â€Å"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. †