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Nardelli Describes Remodeling Home Depot
October 8, 2004
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STANFORD GRADUATE SCHOOL OF BUSINESS—Bob Nardelli, CEO of Home Depot, described to Business School students how he updated the firm's entrepreneurial spirit with strategic discipline and accountability to jump-start growth. Nardelli—once described by Jack Welch of General Electric as the "best operating manager" he'd seen—took over the home improvement giant four years ago.
His statistics about Home Depot's impressive growth occasionally drew audible gasps from the standing-room-only crowd at the View from the Top speech. Consider this: A new Home Depot store opens every 48 hours; there are now 1,813 stores; the company generates $7 million worth of sales every hour and 1.25 billion transactions every year. Home Depot now has 43 stores in Mexico, providing 5,350 jobs and 450 million pesos of payroll. In the past three years, Home Depot has grown its top line by $19 billion. As Nardelli puts it, "That's like building a company like Caterpillar."
But Home Depot was a very different company when Nardelli arrived. After 20 years of success the firm was at the top of its industry but had grown complacent. There was no mid-range forecasting process, and technology systems were so outdated that Nardelli wasn't able to send an email to all the store managers at once. Merchandising techniques and the product line seemed stale.
Nardelli's transition from his position as a top manager at GE to the helm of founder-run Home Depot was not easy but it was quick. Nardelli was passed over for GE's CEO position the weekend after Thanksgiving 2000; within a week, he accepted and started his job as CEO of Home Depot. His first day, the security guards didn't know who he was and delayed him from getting into the building. His desk was being installed as he walked into his office for the first time. He felt like an outsider, and his associates feared that he would "GE-ize" Home Depot.
But that didn't deter Nardelli, who introduced a new system he calls "SOAR" (strategic operating and resource planning), expressed in a large flow chart that he hangs up in an auditorium during strategy sessions. "It allows us to see opportunities we otherwise weren't seeing. It allowed us to bring a more market-focused, customer-centric view. We're doing a lot more strategic market intelligence than we ever did. We're trying to bring the discipline of the industrial environment—where metrics and accountability mean a lot—and meanwhile cherish the entrepreneurial spirit that got us to where we are today."
The strategic process is taken seriously. In September 2004, Home Depot completed four weeks of rigorous strategic reviews by product line and by function. In November, the company will create budget for the strategy. Then, Nardelli will meet with human resource leaders and spend full days with division presidents and functional leaders to make sure the strategy is ready to implement. "When you get beautiful coordination, it's amazing the success you can have," he says. "We have this overarching strategy, a template for change management, where we have to focus on the things we're doing and if are they relevant to the strategy. If not, we're probably wasting our time or we certainly don't have the right priorities."
Nardelli also realized it was time to start modernizing the stores and changing the shopping experience to meet new customer tastes. In the past four years, Home Depot has put $14 billion back into the company. This year, it will spend $1 billion alone on store modernization—half of that on updating technology. Major initiatives have included remodeling the stores' aesthetic to make their appearance appealing for both men and women, creating distinctive and innovative merchandising, and making sure the leadership teams understand where the company is going. "The landscape is strewn with retailers who got locked into a paradigm and couldn't change," says Nardelli, who doesn't plan on letting that happen at Home Depot.
One top priority is store organization. It may seem counterintuitive, but Home Depot used to purposely make their stores confusing with bad signage. The theory: If people are lost, they will shop more. Today's customers value speed and convenience, says Nardelli, who improved the signage and also installed 800 self-checkout counters, which 33 percent of customers use, cutting queue time by 40 percent. He also invested in 90,000 wireless bar code readers to make it easier for customers with bulkier items to check out.
Updating the paint department was another focus. After market surveys showed that customers wanted more choice, every Home Depot store was reset in 90 days with a new technologically advanced color center. The centers are now stocked with upscale paints like Ralph Lauren and spectrometers that match fabric swatches with paint colors. "We're making sure we're providing for where the customer is going, not where they've been. Either you shape the future or the future shapes you," says Nardelli. "We must be in front of trends and fashion. You have to understand the sensitivity to the emerging trends as though you are in apparel."
To that end, Nardelli is tireless in his search for "mega-trends"—like the growing Hispanic population and effects of Americans' increasing obesity—and the economic and industry news that is shaping them. Waking up at 5:15 every morning, he watches three television programs and devours any newspaper he can get his hands on. "I would encourage you to think about every conversation you have. The thing that will differentiate you from others is the ability to connect the dots of what's happening in your world," he says. "There is learning in every article and every news report if you relate it back to your business. You can't absorb enough in today's environment and relate those things to the mega-trends you're seeing."
Indeed, Nardelli is well known for his always-can-do-better attitude and indefatigable energy. "Never get arrogant. Arrogance breeds complacency. Complacency says you're going to lose your edge. Be number one; don't act like it. You've got to cherish each transaction you've got and be ruthless in attracting new customers with better merchandising, better distinction, better technology, and better presentation."
—Sarah Robertson