Home Depot Structure Analysis

Home Depot was founded in 1978 by Bernie Marcus and Arthur Blank in Atlanta, Georgia. With their store, Marcus and Blank revolutionized the do-it-yourself home improvement market in the United States. Home Depot began as a very basic store, operated in a large, no-frills warehouse. Home Depot carries over 35,000 products, with national brand names along with the Home Depot brand. At the start, Home Depot was able to offer exceptional customer service with knowledgeable employees who could guide customers through home renovation projects. Since its opening, Home Depot has experienced incredible growth, and today is North America's second largest retailer, and the largest home improvement retailer. Internationally, Home Depot has expanded into Canada, Mexico, and is beginning to operate stores in China. Home Depot's competition includes Sears, Ace Hardware and Lowes (the main competitor).

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