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Finba1. i. Home Depot’s mission statement is as follows: “The Home Depot is in the home improvement business and our goal is to provide the highest level of service, the broadest selection of products and the most competitive prices. We are a values-driven company and our eight core values include the following: Excellent customer service, Taking care of our people, Giving back, Doing the "right" thing, Creating shareholder value, Respect for all people, Entrepreneurial spirit, Building strong relationships.” (Home Depot, 2014). According to Exhibit 2.1 in chapter two, Top management of a company provide strategic direction after assessing the external and internal environments. Taking a look at the external environment, some of Opportunities available to Home Depot (Circa 2005) were Restructuring, to make operations more sound and profitable, provision of internet shopping facilities to customers, and expanding the market geographically and locally, as well as targeting new market segments. It should be quite important to note that during the Nardelli era, the slogan Home Depot used was “Improve everything we touch”.
Threats included declining home sales and market share, a looming credit crunch, a dip in the level of customer service and product knowledge hitherto offered due to poorly trained staff, and a saturation of the markets in North America.
Increasing levels of Environmental Uncertainty as more layers of management are added to achieve a more vertical structure (Though still relatively simple) and decreasing levels of Resource Availability as competition heats up with Lowe, and even Wal-Mart.
A look at the internal environment indicates that Home Depot’s Strengths include a strong brand name, diverse range of products, excellent reputation for customer service and product knowledge, dominance in the home improvement industry and entrepreneurial spirit due to a largely horizontal structure. Weaknesses include management’s excessive focus on costs, lack of innovation, stagnant share price, declining levels of knowledgeable staff and decreasing morale of employees.
Distinct competencies include excellent customer service and extremely knowledgeable staff in home improvement. Leadership Style in the previous years was veered towards achieving a decentralised and horizontal structure with store managers having a lot of autonomy, but in recent years has changed to a more vertical structure with management adding more layers of control to ensure compliance. Past Performance shows that the company has been very strong in revenue generation, as well engaging in rapid expansion.
Based on the above metrics, Top management at Home Depot has defined their industry boundary. Not building materials. Not just plumbing. Home improvement, with the goal to provide the highest level of service, the broadest selection of products at the most competitive prices. To be true to their name, they offer free workshops to customers on home improvements. Upon defining their industry boundaries, they set up 8 pathways on how to achieve their mission of providing the highest level of service and the broadest selection of products. Having set this up, the organisational design set up by top management will reflect the way the goals and strategies are implemented, (Though in this case there was a bit of a disconnect in the implementation which caused problems) because it is the administration and execution of the strategic plan.
The effectiveness of the mission goals and objectives will include Resources, efficiency, goal attainment and competing values. ii. Using Porter’s competitive strategy to analyse Home Depot’s position, it can be inferred that Home Depot makes use of the Low Cost Leadership model to compete, as can be seen by the management’s aggressive active cost reduction strategy, efficient use of resources, and increasing concern with process discipline rather than innovation. iii. iv. Before the entrance of Nardelli, Home Depot was in the business of providing services and products for Individuals, who were mostly not very knowledgeable about home improvement. A trend setter, Home Depot popularised the “Do –it-yourself” concept, as well as the “one stop shop” concept for home improvement materials by stocking building and plumbing supplies, wallpaper, garden supplies, etc.
After the arrival of Bob Nardelli, Home Depot switched its focus to provision of specialized products and services to Smaller Professional Customers which included real estate developers, plumbers, electricians, independent contractors.

2. Pre-Nardelli Structure
Home Depot’s pre-Nardelli strategy was to adopt a Geographical structure, to deal with the needs of the local populace in each region. This type of structure is characterised by decentralization, with the regional centres largely being autonomous in decision making. There was a lot of verbal communication, and a culture of informality. A valuable advantage of adopting this structure is the ability to adapt quickly in an unstable environment. The adoption of the geographical structure gave rise to the setting up of nine regional purchasing offices across the US. Store managers were encouraged by senior management to send back directives from head office which was deemed inappropriate for their store. This was in a bid to ensure that store managers were largely entrepreneurial and were able to respond quickly to the needs and preferences of the local market
In adopting the geographical structure the pre-Nardelli Home Depot was designed to be an organisation with a largely horizontal structure and the power distance from top to bottom was quite short, with a wide span of control.

Post – Nardelli Structure
Home Depot’s post-Nardelli strategy was to adopt a largely Functional structure, with activities grouped together by common functions throughout the organisation. The major feature of the functional structure is centralization, with power resting solely with executive management. This type of structure is also characterised by layers of management as control is a key issue. Problems within functions usually have to travel up the organisation structure to be resolved, and the solution passed down. The power distance from top to bottom quite tall. The prevailing culture within a functional structure is quite formal. A strategic advantage acquired by adopting this structure is the achievement of economies of scale within functions, and organisation wide, as could be seen by the huge cost savings Home Depot made in Nardelli’s first years at the helm. A major disadvantage however, is the loss of ability to innovate as initiative and entrepreneurship skills are largely discouraged. After Nardelli became the CEO, he was quick to create new titles and roles, adding more layers of management to better monitor compliance and creating a power centre. Nardelli was also quick to centralise purchasing (to cut costs), and merchandising (to achieve product uniformity).
In adopting the functional structure the post-Nardelli Home Depot was designed to be an organisation with a largely vertical structure and the power distance from top to bottom was quite tall, with a narrow span of control.

3. Home Depot`s external environment can be subdivided into two sets which are the Task and General environments. .
The task environment is generally concerned with and encompasses those sectors of the environment that interact directly with the environment. These sectors have a direct influence on the environment. An examination of Home Depot`s task environment reveals that in
i. Industry Sector – Home Depot is the largest specialty retailer in the US, and the second largest retailer after Wal-Mart. Together with Lowe it accounts for more than 60% of the US market. Home Depot became a trend setter, popularising the concept of a big box retailer, “a one stop shop” for prospective home improvement enthusiasts. ii. Raw materials Sector – Because of its size (it is almost as large as Wal-Mart), it stands to reason that Home Depot will have a very large number of suppliers, who provide Home Depot with the products it sells, since Home Depot is not in the business of manufacturing home improvement items. Nardelli has since embarked on a program of scaling down the number of suppliers, laying emphasis on driving with loyal vendors and developing more business with fewer entities. iii. Market Sector – iv. Human Resource Sector –
v. International Sector – Home Depot`s reach extends to several countries internationally, including China, Chile, Canada, Mexico and Puerto Rico, though most are on the American continents except China. In expanding internationally, Home Depot will have yo contend with globalisation and outsourcing.
The general environment is concerned with and encompasses those sectors of the environment that interact indirectly with the environment. These sectors have an indirect impact on the environment. An examination of Home Depot`s task environment reveals that in
i. Government Sector – To remain operational in all the countries Home Depot has stores in, it is subject to and has to abide by the laws of all the countries it operates in. Even in the US, there are various regulations dealing with interaction to the environment, labour laws, religious laws etc. Because of its size, and the possibility of monopolising the market, Home Depot should take steps to ensure it doesn`t break antitrust laws. Other relevant laws include conflict of interest, fair dealing etc. ii. Socio-Cultural Sector – A decline in the birth rate in the United States, and much of the western world signifies that there is an ageing population, especially in the US. One of the surest ways of increasing the population is through immigration. Immigration is also be expected to be a primary source of labour. Batalova and Terrazas 2014 indicate that by 2000 the immigrant population in the US made up 11.1 percent (31.1 million individuals) of the total U.S. population and by 2009, immigrants comprised 12.5 percent (38.5 million) of the total U.S. population. iii. Economic Sector – Due to a slowdown in the economic sector, Home Depot is facing rising costs, decreasing sales and stiffening competition from diehard competitors like Lowe. iv. Technological Sector – Home Depot spent over $1 billion to modernise its technological infrastructure and IT systems, including a new system for inventory management which help vendors maintain inventory and give up to date data on stock levels. By 2005 at least 11% of all sales were replenished automatically. With the advent of the internet, Home Depot has also gone online to offer internet shopping services, and well as customer inquiries.
v. Financial Resources – With huge cost savings in recent years from operational efficiency, Home Depot has had more financial resources at its disposal.

4. Stakeholder Group | Relationship | Major Competitors (Lowe) | Population Ecology. “A population is a set of organisations engaged in similar activities with similar patterns of resource utilization and outcomes and competing for similar resources”.“Innovation and change in a population of organisations take place through the birth of new forms and kinds of organisations more so than the reform and change of existing companies. This means that large established companies become dinosaurs, with new organisational forms emerging that fit the current environment, fill a new niche and over time take away business from established companies”. (Daft and Armstrong, 2009, pp. 174).Lowe was established in 1921 and provides home improvement services to contractors and individuals. Lowe, from its inception, has maintained a traditional small store format, and had adopted a functional operating structure until the 1980`s. But in 1978, a new type of home improvement company emerged, adopting a warehouse style format with the concept of becoming a one stop shop for all DIY enthusiasts. Pursuing a generalist strategy by offering a broad range of products and services, this new organisation adopted a geographical model, and was much more responsive to the needs of the local populace, and was able to adapt quicker than other traditional home improvement stores. This new organisation (Home Depot) began to compete for the same resources, the same suppliers, and the same customers, eventually surpassing Lowe in 1990 to become the dominant company in the home improvement industry | Customers | Collaborative Networks. The Collaborative Network perspective is the alternative to resource dependence and puts forward the idea that instead of competing against each other, institutions can join together to share scarce resource, becoming more competitive in the process. From its inception in 1978, the founders of Home Depot encouraged employees to develop relationships with customers, rather than seeing the sales as a transaction. Home Depot ensures that it collaborates with its customers by providing free workshops and clinics on how to go about basic tasks in home improvement while providing competitive prices, in return for continual patronage | Suppliers | Collaborative Networks. In the old days, retail giants such as Home Depot would have used a resource dependent strategy with its suppliers to ensure a steady supply of products since it viewed its suppliers as its competitors. But cooperation has proved to be a “prerequisite for greater innovation, problem solving and performance”. (Daft and Armstrong, 2009, pp. 174).This can be seen in Home Depot`s drive to develop more business with loyal vendors and fewer suppliers. Successfully integrating inventory management systems with its suppliers with help both companies monitor inventory levels to quickly replenish fast moving products. | Governments | Institutionalism. According to Daft and Armstrong, 2009, pp. 179, The institutional perspective describes how organisations survive and succeed through congruence between an organisation and the expectation from its environment. This view believes that organisations adopt structures and processes to please outsiders, and these activities eventually take on rule like status in the organisation. Home Depot employs the legitimacy concept in its dealings with the governments of the different countries it operates in, ensuring that its actions are proper, desirable and appropriate within that environments system of norms, beliefs and values. This sends signals to the government that the organisation is in compliance with laid down rules and is held in good standing. | Investors | Institutionalism. People will not invest in the organization if it sends strong signals of non – compliance of wise financial management. Apparently there wasn’t a lot confidence in Nardelli’s approach to management by the investing public, which meant that the share price was roughly the same at the time of his exit as the time of his entry into Home Depot. |

ii. The level of Bureaucracy found in Home Depot can be pegged at the Rules and Procedures. According to Daft and Armstrong 2009, pp. 309 this “enables organisational activities to be performed in a predictable and routine manner”. Nardelli invested all that technology and information systems so that results can be predictable. For his results to be predictable, he needs to ensure uniformity in his processes. This uniformity can be established by setting up rules and procedures for the process.
Based on the case, it can be inferred that Home Depot is at the Collectivity stage of the organisational lifecycle. Formerly in the entrepreneurship phase, Home Depot moved to this phase with the employment of Nardelli. This is the phase when the organisation begins to develop clear goals and direction. This stage is characterised by strong top to down leadership, establishment of departments along with hierarchy of authority, job assignments as well as the beginnings of division of labour (Daft and Armstrong, 2009, pp. 304).
Also communication and control are mostly informal, and an autonomy crisis may occur when top managers, who were successful as a result of their strong leadership and vision, do not always want to give up responsibility. ii. In the future, foreseeable problems include bureaucracy, and a need for revitalization.

8. i. Home Depot`s organisational culture (Based on the material provided) fits squarely with the Mission culture. According to Daft and Armstrong, 2009 pp. 341, an organisation concerned with serving specific customers in the external environment but without the need for rapid change is suited for the mission culture. Characteristics of the mission culture are * An emphasis on the clear vision of the organisation`s purpose and on achievement of goals for example, sales growth or profitability. * To achieve that purpose individuals may be required responsible for a specific level of performance, with the organisation promising rewards in return. * Because the environment is stable, managers can translate a future desired vision into measurable goals and evaluate employee performance in meeting those goals. * Reflect profit orientation and a high level of competitiveness. (Daft and Armstrong, 2009).
Prior to the entrance of Nardelli, Home Depot made use of the geographical structure. But after Nardelli, Home Depot changed its operating structure to a functional focus, adopting a mission style culture in the organisation with the emphasis on efficiency with a view to profitability. This can be seen in the increased employment of managers with a military background. In the military, individuals are steeped in the mission culture, learning about strategic objectives, and how to achieve them. To achieve this, Nardelli did the following * Established the clear goal of making Home Depot much more profitable , with a three part strategy of making existing operations more sound and profitable (enhancing the core), extending the business into new lines and expanding the market geographically. * Established a very tall power structure with an established chain of command. * Employment of managers with a military background. * Centralisation of purchasing and merchandising to cut costs and achieve uniformity. * The adoption of the six sigma approach to store operations to improve efficiencies in the operational process. * Heavy investment in technology. * Introduction of discipline through data analysis and performance evaluation. Personnel incentive plans were developed with the aim of tying incentive to performance. Store managers were required to achieve weekly and monthly targets. Employee performance was linked to bonus payments. * Ensured that all personnel were ranked according to performance metrics.
ii. Using the contingency framework for using decision models, it can be well established that Nardelli and Home Depot`s approach to decision making are in the Cell 1. Daft and Armstrong 2009, pp. 455 put forward the idea that * Rational decision making procedures are employed because of the existence of little uncertainty. * Problems are agreed on, and cause and effect relationships well understood. * Decisions can be made in a computational manner. * Alternatives can be identified and the best solution adopted through analysis and calculations.
Nardelli employed a rational decision making approach to making decision sat Home Depot. Organisational decisions can be classified into two. * Programmed decisions * Non programmed decisions.
This classification is based on the level of complexity of the decision to be made. Programmed decisions are well defined, and there are existing procedures to resolve such problems. Nardelli`s desire to improve profitability at Home Depot wasn`t a novel idea. This is the problem that hundreds of companies face. After correctly identifying the problem, his approach to problem solution was to reach into the well established procedures designed to tackle the problem, since the criteria of performance was well established, and there was available information on current performance. Upon evaluating his alternative, he was relative certainty that the chosen alternative would be successful.
Home Depot`s managers also made use of a rational approach, employing the management science approach to deal with decision making as most of the decisions they had to make were programmed decisions. Management science relies on large quantities of data, totally removing the human element from the process. This can be seen with Home Depot`s managers “using software to analyse current and historical sales data and determine when, where and how to mark down prices”. (Daft and Armstrong, 2009, pp. 441). In 2004 Home Depot implemented assortment planning, markdown management and store panning software, and by 2005 11% of sales were replenished automatically.


Robert Nardelli upon joining Home Depot as its CEO was deeply aware that the company had the capacity to be much more profitable than it was at that time. To increase the profitability, he embarked on a series of strategic and technology changes, which in effect led to a cultural change. Most of the change implemented by Nardelli was really about control. Some of these changes include * Changes to the organisational structure, adding new layers of control to management, to create a taller and vertical structure, and drastically reducing the level of autonomy store managers were previously used to. * Centralisation of the procurement and merchandising function. This was meant to reduce costs as well as enable stores get control of their inventory. * Modernizing Home Depot’s technology infrastructure, as it was practically non-existent. * Simplification of Sales associates’ roles with an eye to better specialization, and freeing up staff to give better attention to customers.
Robert Nardelli was more interested in efficiency than innovation, and so attempted to change the existing organic structure to a mechanistic one. He only made changes, not innovations to the company. The changes, especially the increase in the layers of control, and excessive focus on costs ensured that the entrepreneurial spirit, which was
In retrospect, Nardelli wasn’t a bad CEO. He was simply better suited to a company that was engaged in mass production of the same products. In implementing the strategy to ensure better profitability of the company, he failed to realise that change is frequently disruptive and uncomfortable for manageres and employees.

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