March 18, 2013
Environmental Scan of Home Depot
Strategic planning is necessary for every successful company and needs to be managed accordingly. Environmental scanning is the first phase in strategic planning management. Environmental changes, whether external or internal can pose major problems for a company. A scan of environmental factors provides a better understanding of current trends and what causes things to change. An analysis of this information can ensure long-term stability and orientation for any business. This paper will explain the element of environmental scanning and describe the internal and external environment of Home Depot; summarizing the competitive advantages and current strategies they employ. The strategic management process has four different components: Environmental scanning, strategy formulation, strategy implementation, and evaluation and control. “Before an organization can begin strategy formulation, it must scan the external environment to identify possible opportunities and threats and its internal environment for strengths and weaknesses” (Wheelen & Hunger, 2010). A SWOT analysis is an effective tool for organizing these factors.
The internal factor of environmental scanning consists of a company’s strengths and weaknesses. An easy way to analyze these factors is to create an Internal Factor Analysis Summary, (IFAS) table [see Exhibit 2] or VRIO framework (Value, Rareness, Imitability, and Organization). Where the internal environment deals with strengths and weaknesses, the external environment is about opportunities and threats. These factors can be analyzed using a STEEP Analysis or PESTLE Analysis [see Exhibit 3]. When scanning the external environment, many variables need to be considered; natural environment, societal environment, task environment, and industry analysis. The natural environment consists of wildlife, weather, and other resources that from nature that can be used to satisfy our wants and needs. There are four factors included in the societal environment scanning process: economic forces, technological forces, political-legal forces, and socio-cultural forces. These factors can affect long-term decisions made by the company. Task environment includes the stakeholders and is within the industry. Industry analysis is the in-depth examination of the natural, societal, and task environments.
HOME DEPOT SWOT ANALYSIS (see Exhibit 1)
Home Depot is the world’s largest do-it-yourself home improvement retailer, making them a common household name. There are more than 2,200 locations in four different countries. Having such dominance in the DIY market enhances their brand awareness. “The Home Depot developed strategic product alliances directly with industry-leading manufactures to deliver the most exclusive assortments to customers” (The Home Depot USA Inc, 2012). Many top of the line product names are sold at Home Depot. Their employees are put through a very thorough product knowledge training, which includes cross-training for other departments. This knowledge allows them to teach free classes about home improvement to customers in their free How-To-Clinics, offered at every store on Saturday and Sunday. Undertaking home improvements or remodeling is cheaper than hiring a contractor or handy man. To help save customers money, Home Depot offers guaranteed low prices. If it can be found cheaper somewhere else, they will match that price. The company generates enough revenue to stay on top of technological advances. They spent $60 million in 2010 on new hand-held devices that will help employees stock shelves, access inventory, check out customers from anywhere in the store, and many more helpful capabilities.
Some of the bigger products sold at Home Depot are too expensive for the customers to buy, especially when they will use the product only a few times....