Answers to Final Exam: Commander Ajit Pal Singh
After Mr Nardelli took over Home Depot, the sales, which were stagnating earlier, soared from $46 billion in 2000 to $81.5 billion in 2005. The average annual growth rate of company increased to 12%. The major reason for that was minimizing the cost through centralized purchasing and adoption of technology. He adopted technology to automate the stores, employed contemporary inventory management systems, automated of point of sale and customer check-out system etc. These systems also generated data automatically which allowed him to use ‘analytical techniques’ to improve the business rather than based on ‘gut feeling’. In preceding years, the company grew at frenzied pace and became unmanageable. Mr Nardelli slowed down the expansion plan to attain stability. Effective management of inventory and space allowed the company to compete with ‘airy’ stores of competitor Lowe’s. He introduced GE’s Six Sigma methodology to improve productivity and cut waste/ rework. All these measures increased the profitability of the company although performance on stock market did not see major improvement.
To kick-start the stocks, Mr Nardelli decided to venture from retail to service oriented business. Further, he was encouraged to move in this direction because of absence of major competitors and strong financial growth of the company. In isolation, this strategic move to catch the bigger competitors by surprise and attain the ‘first-mover’ advantage appears to be sound. However, the remaining Ss of 7s model are completely out of alignment with this business strategy.
Home Depot was founded on Entrepreneurial Model. Essentially, for 20 years the business success was centered on creativity, innovation, freedom to experiment, human touch and decentralized approach. Imposing centralized command and control (military-like) structure came as a shock to its employees. The company’s highly centralized structure was a significant impediment in implementation of the new strategic initiative, which envisioned ‘Service Oriented’ business. This demanded autonomy at ground level and decision-making powers to be passed down to the lowest wrung in the ladder. Ground level managers no longer took decisions based on their ‘Tribal Knowledge’ and “Local Culture” of the region. This resulted in customer dissatisfaction. Further, centralized structure killed the entrepreneurial spirit and creative side of the company, which were key ingredients for ‘Customer Centric Services’.
Mr Nardelli’s $1.1 billion investment in technology and systems, such as self-checkout aisles and in-store Web kiosks have resulted in more than doubling up of profits to $5.8 billion. Analytical Business Tools have enhanced the productivity. Information distribution system such as HD-TV is in place (though not liked very much by the employees due to autocratic leadership style) and used to establish communication with the employees. The reward and compensation system, though stringent, is in place and is transparent to all employees. Though the biggest drawback is lack of ‘Customer Satisfaction” tracking system.
Induction of large number of part-time workers adversely impacted the productivity and organizational culture. Further, high attrition rate of executives created huge job insecurity amongst the employees. Mr Nardelli’s obsession to recruit military personnel in the company resulted in uni-dimensional employee profile. Of the 1142 people hired into company’s leadership program almost half (528) were junior military officers. While military personnel are known for loyalty, honesty, obedience and discipline, they rank low on creativity, innovation and ingenuity. The new Strategic initiative required latter traits to become successful in ‘Service Oriented Business’.
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While Mr Nardelli is in love with military...
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