Home Depot Issues - Case Study Example

?Topic: In this paper I shall evaluate and analyze the problem that Home Depot is facing. Home Depot started in 1978and grew at a very fast rate, and in fact the fastest growing company. Frank Blake was appointed the new CEO in 2007 having served as the vice president of the board of directors and also the vice of business development and corporate operations. Blake’s administration was faced by various challenges. Among the most notable was a decline in sales due to the global recession. To cope with these challenges, various strategies had to be put in place (Hagg A, 2011 ). These strategies were in line with the current improvement in technology. After several years, the company had been restored to a stable state and its growth rate was regained. This came with new challenges which had to be coped with and therefore the strategies employed were long term. Through a critical analysis of Home Depot I will show how it rose and managed to compete with others in the industry. It started with two stores in Atlanta and soon opened other branches all over the United States. For two decades it had a good reputation for its good customer services which differentiated it from most of its competitors. However this seemed to decline with time and cost the company greatly. This was noted due to the reduction of revenues and the amount of sales. The idea of the appointment of Blake was to restore the company’s reputation in the industry. After almost two decades of profitable and rapid growth, the company had to deal with the stagnation of these two aspects due to heir decline. The real problem, as I will show in this report was how the firm could achieve further growth without centralization and standardization. The paper shows the various steps that the firm undertook to cope with the problem. The first step as I have already outlined was appointment of new leaders. They were to spearhead the company’s operations in all aspects. Introduction Home Depot Inc became the fastest growing firm in the world after its establishment and no one would have ever thought that such a firm would be faced with the challenge of operating in an interconnected world of retail which led to of slowed growth rate and reduction in revenues. The business environment had changed due to customer empowerment and development of on-line retailing. To cope with this problem, the firm embarked on standardization, centralization and performance metrics. Home Depot was established in 1978 by Marcus and Arthur Blank together with other associates. Marcus and Blank had enough experience in home improvement firms as they had both worked in Handy Dan Home improvement Centers before they were fired. They had an idea of creating their own firm which would be bigger and much improved from the one they had been working in. Home improvement industry in the U.S was at its climax and each day new firms were being establishment. They had an idea of establishing theirs that would be much competitive in the industry (Hagg A, 2011). The reputation of the firm in the country was built by its commitment to service of customer. Different from many other firms they adopted an inverted pyramid in their ways of operation putting the customers in front of the firm and the administration. The main customers of the firm were the do-it-yourself customers. These customers are those that purchase products and go ahead to install on their own. There was a need by the firm to have proper arrangements and training people in the firm on how to handle customers and explain to them on how to install the products in their homes. The other kind of customers to be targeted was professionals. These were mainly those that are trained such as plumbers and masons. Thou their number was much less than the other kind, they were the most frequent and contributed a considerable amount of revenue to the firm. Home Depot faced strong competition from Lowe’s which had a great share of pro customers in the market. After the massive drop in revenues and slowed growth, the firm embarked on several strategies to cope with the challenge decentralization and lack of standard. I will analyze this problem and the ways in which the firm managed to regain its status and also suggest other ways that could be used in a similar situation. Good customer services had begun to deteriorate in the late 1990s which was an opening for competitors due to disorganization. Shareholders had begun to worry about their earnings per share due to its dropped prices. The leaders however remained optimistic that the firm would still regain its status despite the challenges (Hagg A, 2011). Strategies Customer services The first step was to strengthen customer services in all the stores. Through training of all the workers in the firm, it was possible for the firm to improve its customer services which was its strong point over other firms. Home Depot partnered with other professionals to offer some services for home improvement to customers. Some of these services included lying tiles and fixing doors and windows. The firm used both internal and externally hired people to offer these services. They recognized the importance of a customer in any business and in order to maintain and attract more. Welcoming customers and talking to them politely was a major boost in maintaining good customer relations. The do-it-yourself customers, who formed the largest percentage of the firm, need proper explanation on how to fix and install the products they purchase from the firm. Putting customers in front of any other activities was a notable thin within the stores. During the hours when stores experienced huge customer traffic, known as power hours most of the other associate activities were usually suspended in order to serve the customers first. Power hours were from 10.00 am to 2.00 pm during weekdays and all day during weekends. This ensured that no customer was left unattended and in time. After the appointment of Frank Blake, customer services received a further boost. He advocated for maximum co operation on all matters of customers. He reinstated the inverted pyramid to have customers and the other associates at the top and him as the CEO at the bottom. This meant that service to customers was the most important aspect in the firm, more important than the leaders themselves. He met with other leaders of the firm to make sure that he was up to speed on all the activities of the firm. He was humble and down to earth when it came to management and leadership (Hagg A, 2011). New operational strategies The second method that Home Depot applied was application of new strategies in operations. Among the new strategies were diversification and expansion. The firm’s strategy was to extend into new lines of business, venturing into new markets and acquiring new customers. It opened new stores in Mexico and China in order to increase its volume of revenue. However, this came with a cost. After the firm purchased Home Depot Supply in Mexico it had to reduce the number of stores opened in one year from 180 to 100. Home Depot also started to sell new range of products and consequently acquiring a new range of customers. Another strategy that was applied was centralization of merchandising. The firm closed its regional merchandising offices and instead hired some twelve vice presidents to work in Atlanta. This increased the firm’s power of purchasing and negotiating. This was done in the hope that it reduces or even eliminate inefficiencies arising from the inventory. Any purchasing from that point was to be done at the headquarters. The third strategy was improvement of the firm’s operations which included labour productivity, human resources, metrics, and improvement on the general performance. The firm reduced the number of stores it opened annually and instead concentrated more on increasing production per square foot. This helped in reducing operational costs and increased revenues. Another strategy used was leaders leading by an example. Leaders themselves took part in the training of customers which made them acceptable both in the organization and by associates and customers. Blake in particular reduced his salary and put in place laws that would prevent him and other leaders to increase their salaries. Ellison for example sought to know and understand why a customer who had brought back a lawnmower had not been taken care of. He in person followed up cases of customers who had complaints by calling then on the phone and even arranging meetings with them. In order for the company to allow for flexibility and save revenues it increased the number of part time workers. At the stores, staffing levels was reduced and the number of full time workers consequently reduced in order to cut cost. Technology In order to improve productivity, the firm embarked on incorporation of technology and standardization. More funds were invested in IT initiatives in order to improve and make customer services easier. An example is the use of point-of-sale terminals wit touch screens to make it easier for customers and workers to find items faster. Incorporation f technology was one of those strategies that had great impacts in the firm. It had to come up with new ways of reaching customers whose lifestyles and buying behaviors had been greatly changed. The industry had also grown very much with the new competitors emerging every day. Online retail emerged with Amazon posing the greatest threat in home improvement industry. Most retailers had already tried to use both store and online retailing which in most cases resulted in total failure due to inconsistencies for example differing prices in online retailing and stores. Thus the technique had to be approached carefully. The strategy here was to sell some products in the stores and other types online (Hagg A, 2011). In 2011 customers had more buying power than in the past. Their buying behaviors had greatly changed. it I now possible for customers to check prices and compare them online using smartphones. It was estimated that almost half of adults in the United States had applications in their phones to assist during shopping. Marketing took a whole new direction with the emergence of social networks such as twitter and facebook. Risks In an effort to centralize the firm’s operations such as merchandising managers at different stores were deprived most of their powers which was not easy for them to cope with. They felt like the firm did not have faith in them to handle operations. Running business from a centralized location ensured uniformity in all stores. However this could have a negative effect due to difference in customers in different geographical locations. Different customers have different needs due according to their environment. The risk could be minimized by allowing minimal differences based on customers in different areas. In diversification the firm involved itself in selling other products that were not found in its stores. This was notable after the purchasing of HD Supply which forced the firm to engage into areas it did not have synergies in. HD Supply and Home Depot were dealing with different products and therefore it became hard to put the two together. This prompted the sale of HD Supply within the first three months of Blake’s tenure in order for the firm to focus entirely on its main retail business rather than the wholesale business in HD Supply. When Blake was appointed the CEO of the firm he replaced some of the senior leaders of the company with others. Though his motives were purely positive, not everybody could understand that. Some workers could feel insecure in their place of work. The firm also reduced the number of permanent workers and increased the number of part time workers in order to cut costs. This however could lead to slowed development since every new worker had first to be kept up to speed every now and then (Hagg A 2011). In an effort to improve labour productivity the firm introduced technology most notable incorporation of IT in its operation. This was using software that eventually ran out of date. The introduction of technology did not make the expected impact due to lack of training for users and unfamiliarity with the whole thing. Also it was faced with mismanagement and misalignment in order to fit with the needs of each store. Ranking of managers and associates was based on different metrics which was not always welcomed by some managers as they did not understand the motives behind the metrics. Some metrics were unclear and took a lot of time for assessment at the expense of other important businesses in the stores such as customer services. Conclusion Home Depot was able to cope and operate in the new world of interconnected retail through standardization and centralization of the firm. This was made possible by the cooperation of leaders, associates and the entire firm in providing high quality services to their esteemed customers. Frank Blake played a very important role in ensuring that the firm went back to its initial status. It was recognized for its good customer services. After two decades of operation, this had declined and it was no longer number one. Lowe’s had surpassed Home Depot in customer services and this was identified as a problem in the firm. It took the firm several years and it regained its status in terms of customer. Though the growth rate of the firm was not restore, it was made to grow positively again. Technology as I have outlined in this paper is one of the major source of opportunities and also the major source of challenges. Through proper incorporation of technology and other strategies Blake and co were able to restore the firm’s reputation especially regaining customer’s trust. I would recommend any firm experiencing the same or a similar problem to apply the strategies I have discussed in this paper and other possible ones depending on the nature of their company in order to find a solution. References Hagg, A. (January 01, 2001). Creating a culture of commitment. 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