Home Depot Incorporation was founded in Atlanta, Georgia in the year 1978 by Arthur Blank and Bernie Marcus. Both Arthur and Bernie had been fired from a small company that dealt with home improvement products thus the decision to start a retail store providing these products. At its commencement, Home Depot had a warehouse stocked with a wide variety of home improvement products at very low prices.
From then on, the company has grown to be the largest chain offering home improvement items in the world. At the start, the company grew at a much slower pace but with time the business picked and today Home Depot is a successful enterprise.
With over 2,000stores across the globe, Home Depot is a booming enterprise with Lowe as its main competitor. With reference to the case study, this paper will assess Home depot’s growth strategy, its current business environment, the industry, competitors, the strategies used, and how the company can address the challenges it is facing.
The business environment of a company includes the various aspects of its surrounding which affects the operations in one way or another. In other words, Home Depot’s business environment is a set of conditions that cannot be controlled by nature whereby these conditions affects its normal functioning.
Just like any other company, Home Depot has internal and external environments. Its internal environment consists of factors like manpower, machinery, cash, and management which can be controlled by the business. Home Depot can make changes in the internal environment with respect to changes in the business’s functioning.
This is evidenced by changes in the top management since the company’s inception and the growing number of its workforce and stores. From the year 1979 to the year 2006, the company’s revenue grew from $ 22 million to $90.8 billion respectively. When Home Depot commenced its operations up to the year 2000, one of its co-founders acted as the CEO (Hess 2).
Having grown the company’s revenue tremendously, the board of directors embraced change by replacing Blank with Bob Nardelli. Having served in the military, Nardelli employed a completely different strategy. He imported manpower and ideas from the military and as a result caused culture overhaul.
Previously, Home Depot had a culture that was low profiled and collaborative but Nardelli converted it to “a culture of fear” (Hess 3). The decline in sales experienced during the 1990’s can be attributed to the form of management employed by Nardelli.
Changing the decentralized strategy that paid attention to employees and more importantly to the customers led to the low sales. This shows that changing the internal environment of the business does affect its business’s performance in different ways.
On the other hand, the external environment of Home Depot consists of factors that are beyond its control. The external environment of the business does affect its internal functioning, the strategies it employs, and its objectives as well. The operative external environment of the business consists of customers, the suppliers, competitors, market intermediaries, and the public as well.
The suppliers provide the company with raw materials therefore they must be reliable to ensure success of the business. Home Depot is a multinational company operating across the globe meaning that it has multiple suppliers. Customers are constituents of the business’s external environment.
Customers determine the success of the business therefore the need to tailor products that will provide maximum satisfaction. Home Depot is a large incorporation thus its customers range from industries, wholesalers, retailers, and governmental institutions.
Also, important to the external environment of the business are the market intermediaries who link the final consumers of the products to the business. Banks and other financial intermediaries, middle men, and marketing agencies fall under this category.
Competitors are an important constituent of the external environment of the business as well. Each and every move which a competitor makes affects the company. Home Depot’s competitor is Lowe; with this in mind, Home Depot has to keep on adjusting according to the strategies which its competitor employs.
Both Lowes and Home Depot compete in the “Do It Yourself” market for home improvement products. The merchandise offered by these two include building materials, millwork, and lumber, kitchen, plumbing, electrical, wall covering, paint, and flooring (Hess 4).
The Do It Yourself strategy was first adopted by Home Depot but Lowes has always been pushed by market forces to survive the stiff competition. After conducting SWOT analysis for both companies, it is clear that they possess the same strengths even though Lowe has never out performed Home Depot.
In this case, Lowe is found to have been the market leader and as a result has its loyal customers. On the other hand, Home Depot employed a better strategy of price leadership. The business took the strategy of offering the same product as Lowe but at a lower price.
The public which makes up the external environment of a business consists of people who have vested interest on the operations of the business.
On the macro or rather general external environment of a business, the PESTLE analysis is always carried out to establish its stand on the industry. PESTLE stands for political, economic, social-cultural, technological, legal, and environmental factors that make the external environment of a business.
The political factor determines how a change in governmental policy can affect a business. Political factors are felt in areas like labor and environmental laws, tax policies, tariffs and trade restrictions as well as the political stability of a country.
The economic environment is dynamic and it reacts to changes in politics and policies. An economy can affect a business through government spending, exchange rates, and interest rates among others. Social factors analyze how the beliefs and behaviors of the consumers affect the business. Culture, attitudes, and population constitute the social factors of the external environment.
The technological environment concentrates on the speed at which product innovations and production processes can affect the business. Ethics are important for a business for they lead the management and workforce to do what is regarded as morally right. Time and again, integrity and acting in an ethical manner have been said to be the driving forces that have contributed to Home Depot’s success.
Environmental factors including the aspects of climate, climatic change, and weather which are important in the external environment of a business. Legal factors include consumer laws, discrimination laws, and employment laws. All these factors are important components of Home Depot’s external environment for they affect its operations in the short and long terms.
Since the 1990s, the industry of home improvement has experienced a speedy growth. With the wealth effect, many people have invested heavily on expensive and prized possessions. Change of customer needs, increased housing expenditure, and the internet has made the industry what it is today.
In its current situation, Home Depot has employed successful business strategies that can be summed into its core values. The core values include: offering excellent service to customers, caring for the people, being ethical, shareholder value, respecting all people, giving back to the society, maintaining a spirit of entrepreneurship, and building strong and lasting relationships.
The vision of stores with a wide variety of assorted products at low prices and giving customer’s excellent services has contributed to the company’s success. The greatest strength exhibited by Home Depot is its ability to listen to its customers. The company’s dedication to provide customers with an excellent service contributes to its success.
The only weakness the company has is that it spends more on advertising so as to lock out its competitors. After analysis of every aspect of the company, it is clear that the situation that needs to be addressed by Home Depot concerns the growth strategy. Robert Nardelli’s leadership and management styles did no good to Home Depot therefore the new CEO is faced by a challenging task concerning a growth strategy.
Alternative actions to address the situation
There is need to change the GE style, human resource policies, accountability, technology, and operating efficiencies that were existent during Nardelli’s tenure. Nardelli significantly changed the entire culture of Home Depot through changes in merchandising, the executive, centralization, and purchasing and inventory.
The founders Blank and Marcus adopted an entrepreneurial and decentralized culture that gave first priority to employees and customers. Now that Blake is facing a huge challenge of bringing back Home Depot’s credibility, he can do so by using alternative business strategies.
The alternative business strategies should work on improving the current stores, diversifying services, finding new channels, and expanding the business to the global front.
The change should come from the top management then to the retailers such that they can schedule and optimize their work time. The company should put into consideration ways in which shoppers can be more efficient. This can be done through the provision of self-checkouts.
The best action which Frank Blake can take is to embrace the entrepreneurial spirit so as to settle problems regarding shareholders and employees. Rethinking the current strategies will also be a good alternative. Bringing one of the co-founders of Home Depot to the management level could work well in reorganizing the business.
Redirecting, reorganizing, and dis-positioning of the existing business strategies and some of its operations will be the best alternative. Redirecting the management from its current centralized nature to a decentralized one will enable the business to reach all the customers.
A decentralized management will allow the business time to be close to the customers and through research and development it will capture firsthand information on the needs and wants of the customers.
The information provided by the store managers will aid in decision making. Again, reorganizing the business to adopt the previously used inverted pyramid will help in overcoming the challenge. The pyramid structure recognizes the people working in the stores as very important since they are the ones in close contact with the customers.
Home Depot can employ the “best cost provider” competitive strategy to draw a line between the enterprise and its competitors. It is a fact that Home Depot’s competitors do offer installation services but the enterprise supposedly offers the services at affordable prices.
Nardelli opted for acquisitions and mergers and through them; Home Depot has been able to outdo its competitors. This trend can be used to increase the business’s market share through the opening of more retail stores across the globe.
The Do It Yourself approach coupled with differentiation and price leadership will be great alternatives which the business can take. All these alternatives will aid in satisfying the customers thus the growth of the business (Hess 6).
Recommendation
The best solution for this situation at Home Depot is reorganizing and redirecting the management style. Decentralizing the business like before will enable the business to reach and keep contact with all classes of its customers. Investing in technology will enable customers to order products online. The advancing technology also allows product innovation and production processes.
A decentralized management system, excellent customer service, and competitive prices will keep Home Depot on top. Wide range of assorted products and excellent distribution channels will be a part of the decentralization. Ensuring that the mission and vision statements are observed will keep Home Depot on top.
The core values which include: offering excellent service to customers, caring for the people, being ethical, shareholder value, respecting all people, giving back to the society, maintaining a spirit of entrepreneurship, and building strong and lasting relationships will work well in improving the situation.
The vision of stores with a wide variety of assorted products at low prices and giving customer’s excellent services will aid in the decentralization. The competitive strategies to use will include differentiation and price leadership (Hess 8).
The financial objectives of Home Depot include growing its revenue by a certain percentage, growing the company’s market share through acquisitions and mergers, growing the return on sales and return on investment, and a strong cash flow.
Just like any other multinational company, Home Depot has an objective to be stable in the market, and having a solid balance sheet as well as a good ability to invest.
The implementation plan for Home Depot will aid in measuring the success of the business strategies employed. The implementation plan breaks down each strategy to steps that the management can identify with. These steps are then assigned to people to suggest when each can be completed.
For the implementation to be successful, the objectives should be clear, each task should be assigned with a deadline, and then progress monitored so as to achieve the intended goals and milestones (Hess 10).
In summary, the implementation plan should have: objectives, the tasks to be carried out, time allocation, and then the progress.
Conclusion
The Home Depot incorporation was founded by Arthur Blank and Bernie Marcus in Atlanta, Georgia in the year 1978. The company has been successful since its inception due to its good management and business strategies. With over 2,000 stores across the globe, Home Depot is a booming enterprise with Lowe as its main competitor.
Even though Nardelli changed the management style and culture of the business, Home Depot has always remained unmatched. In this case analysis, the key issue identified is poor growth strategy.
With decentralization of the management, this situation can be done away with since the company will be able to keep in contact with its customers. This way, products can be tailored to give the customers maximum satisfaction hence brand loyalty. An implementation plan is important for it aids in the achievement of financial objectives as well.
Works Cited
Hess, Edward. The Home Depot Inc. Virginia: Darden Business Publishing, 2007. Print.