Controlling Control: How Bob Nardelli

Controlling

Control: How Bob Nardelli Renovated Home Depot

When co-founders Bernard Marcus and Arthur Blank founded Home Depot the company's culture was laid-back, more focused on creating relationships with customers and making collaboration between departments through informal communication possible. There was a lack of precision to performance measurements and no standards of analyses in place for evaluating which areas the company was excelling or struggling in. The founders made the decision in 2000 to hire Bob Nardelli from General Electric (GE) as he had reported to one of the most successful CEOs in the history of American business, Jack Welch. Mr. Welch is known for his non-nonsense approach to management, heavy reliance on Six Sigma, a methodology for optimizing performance processes in manufacturing and services, and for driving accountability deep into GE. He is also well-known for Up or Out mentality of promoting the top 20% of performers and moving the remainder out of the company (Franke, Mento, Prumo, Edlund, 2007). This is the corporate environment that Bob Nardelli spent the majority of his years prior to being hired as the CEO of Home Depot. The founders anticipated a higher level of performance yet did not anticipate the extent to which the culture of the organization would change.

Six Sigma, Trust and Technology

Bob Nardelli has a passion for numbers and sought to measure performance of key processes within the Home Depot supply chain and stores, often instituting Six Sigma audits of performance for individual stores (Reingold, 2008). He is also well-known for his saying of "figures are friendly" (Grow, Brady, Arndt, 2006) (Reingold, 2008) indicating his preference to seek out accountability of performance through Six Sigma-based benchmarking and performance measurement first. This worked exceptionally well throughout the supply chains that Home Depot relies on globally, as there had never been this level of control within their supply chain management strategies in the past. Mr. Nardelli also found that when stores were held accountability to performance of their forecasts from a supply chain standpoint there were greater levels of collaboration and planning accuracy (Reingold, 2008).

In addition to these process-based improvements Mr. Nardelli brought to the supply chain management and logistics functions of Home Depot, he also was responsible for bringing Home Depot into a more competitive position relative to information technologies as well (Reingold, 2008). These information systems were badly needed in Home Depot, which prior to Mr. Nardelli arriving, did not have the ability to communicate store results on a daily basis. Information on store performance and pricing analysis lagged and often Home Depot would be completely missing regional and seasonal opportunities as a result. The company needed greater agility in managing how it responded to customer demands, and also needed to have much greater control over inventory management as a process as well. In responding to these strategic weaknesses in the company, Mr. Nardelli invested $1B in new information systems and created entirely new information systems platforms for the more efficient sharing of sales data between stores and with regional and worldwide headquarters in Atlanta. As a result of this system, Home Depot was able to capitalize on the building boom of the 1990s that lasted into the 21st century, and soundly beat their financial estimates of performance as a result. These systems were also directly responsible for the company gaining market share over Lowes' and other do-it-yourself chains globally as well (Reingold, 2008). The use of it as a strategic advantage, combined with its reporting accuracy of key metrics, was used by Mr. Nordelli to continually drive accountability into the organization. The result was that the fast-moving products that were lower margin yet highly price competitive were more profitable than ever. The company's focus on higher-end services selling continued to gain in performance as the processes used in these higher-end businesses had been re-architected using Six Sigma techniques. Mr. Nardelli was however did not take into account customer-facing metrics as much as needed and was often criticized for a passionate focus only on performance over people (Reingold, 2008). He has since been defended for his passionate focus on results by his former boss, Jack Welch, who says Home Depot benefits from Mr. Nordelli's tough management style more than they realize (Welch, 2007).