Opportunities and threats concerning the company/ industry have to be identified by managers to make these managers anticipate important developments that can have an impact on the firm. According to Kotler, principles of marketing:
Opportunities occur when an environmental trend plays to a company's strength. Companies
can rarely find ideal opportunities that exactly fit to the objectives and available resources.
A company does not have to give the same attention to all threats. Managers should assess the likelihood of each threat and the potential damage each could cause. Focus should then be on the most probable and harmful threats, plans should then be prepared (in advance) to meet these.
To make clear what the opportunities and threats of Home Depot are, we will take important external elements and of those we will give the opportunities and threats. The external elements we have chosen are:
-Economic forces
-Social environment
-Legal/ political forces
-Technological forces
-Market
Key External Factors
WeightRatingWeighted ScoreComments
Opportunities
Economy:
Growth.204.40Last 8 years (at least till 2001)most influence on HD
'''recession proof''' products.102.20People want the best even in bad economy
Social forces:
Ageing homes & baby boomers.155.75Important market for Home Depot
Legal/political forces:
Deforestation issues .104.40Important for image
Technological forces:
Internet.104.60New selling way, great outlooks
Market forces:
Bargaining power suppliers.052.10Supplier needs HD, not other way around
Threats
Legal/ political forces:
Traffic congestion.104.40Can restrain shops to open(on time)
Technological forces:
Internet.103.30Do not no(exactly) where it goes
Market forces:
No product differentiation.104.40Forces HD to compete on certain issues
TOTAL SCORES1.003.55
The opportunities and threats mentioned in the EFAS, are according to us the most important ones concerning Home Depot. The ones with the most (possible) influence on the way Home Depot is conducting business.
For further comments (column 5), please see also the first part of the chapter. Al the items are discussed there.
Why did we take these specific items to discuss in our external analysis?
Economic forces.
Of the economic forces we will give the opportunities, because over the last 8 years (at least till 2001) it has been the most important external factor influencing the home improvement industry and thus Home Depot. For example the economic growth grew at an annual rate of 7.3% during the fourth quarter of 1999. Maybe as a result of economic growth, more wealth etc, people started to realise that their home is one of their highest valued possessions. This can be seen in the table below, where it shows that ''housing'' was the item on which in the years 1996 to 1999 was most money spended. In this time there were a lot of people not looking for new houses but instead of that they undertook a renovation. In these years the Do-It-Yourself (DIY) and the Do-It-For-Me (DIFM) projects grew in quantity. This was among others due to the fact that a lot of houses, built before 1980, need repair. There are also some specific neighbourhoods, which have restrictions on building new houses in the neighbourhood. These two facts will for the coming years almost guarantee high demand for DIY and DIFM.
Economy allowed and will allow Home Depot to grow, even in cases in which the economy wasn't and will not be that good. Growing fast means is often growing in unknown territory. That could prove to be an opportunity, while market share will be increased, sales will go up, more brand awareness will be created etc. Also it could prove to be a weakness. (Rapid) growth can take away managers attention from other stores. Another thing that could happen is that it will take more money than expected to settle (a) business(es). This has actually happened to Home Depot in the 80's. It has happened and although Home Depot will hopefully have learned from that experience, we can't exclude that it will happen again.
Home Depot and other large participants in the home improvement industry produce ''recession proof'' products. ''recession proof'', because they offer the best and even in times where a bad economy is occurring, people want the best for their money. This does not mean that in times of an economy slowing down that the sales will stay the same. It is just that the 'recession proof' products are still attractable for customers in a slowing economy and that compared to non ''recession proof'' products these products slowdown in sales will be less.
Social forces.
Social forces will be taking into consideration because it is a key success factor to building retailers to have the ability to predict and respond to social and demographic trends. Predicting of and respond to social and demographic trends on a timely basis grants among others Home Depot the possibility to stay ahead in the home improvement industry because they know and give what the customers want on a timely basis.
The social forces concerning building retailers can be separated into the following two facts:
Ageing homes and baby boomers:
When we take a look at the US market, near the year 2015 the number of people with the age between 45 and above is expected to reach 127 million. This is important for Home Depot (the home improvement industry in general actually) because it is likely that these people will not so quick purchase another (new) house. Instead of that they will probably renovate their existing homes. There are a lot of houses from before 1980. The chances are quite high that a lot of these houses will be owned by baby boomers. These baby boomers, reaching the more retirement age, will stay more and more home, save money. It is less expensive to drive to Home Depot and purchase some materials and tools to make your own modifications to your house than to hire an expensive professional contractor. In 1999, 52% of all home furnishing purchases was done by people with the age between 35 and 45. Analysts predict that near the year 2010 this percentage will be increased with another 33%.
Changing consumer attitudes:
The consumer attitude in the 80's was an attitude of: spend, spend, spend. In the 90's this attitude changes to one which was oriented on value. Because people became more value oriented, they became more home pride. They wanted for themselves a beautiful home, also to show others what they have. This so called ''home pride'' helped to shift the expenditures of home improvement and home furnishings into the high regions.
Another thing that changed during the 90's was the fact that more and more woman entered the home improvement area. In 1999, woman accounted for 38% of all the DIY purchases in the USA. Some retailers even changed their store(s) a bit to appeal more to woman.
The last changing consumer attitude we could find is the fact that nowadays a lot of purchases of DIY products go via internet. In the year 2000, 4.8% of all the purchases went via the internet. This does not seem to be a significant percentage, but it is an increase of 118%.
Changing consumer attitudes also hold a possible threat. It is possible that the needs/ attitudes of customers change in a way negative for Home Depot. For example, customers turn away from DIY. Then there are still other segments (DIFM and professional), but it would still mean a significant loss for Home Depot. This example might be a little bit exaggerated, but it could happen. Other example in a negative change of customer attitudes could be that they do not want lumber anymore but a better for the environment resource or that Home Depot is investing largely in stores while customers decide that they only want to shop via the internet. Other way around is also possible.
Legal/ political forces.
These kind of forces are very important because they allocate/ assign power and provide constraining and protecting laws and regulations. Laws and regulations can make or break a company, if not sufficient researched. There are two major facts that influence the home improvement industry, which are:
Deforestation issues:
One of the main products used in the home improvement industry is wood. No player in the home improvement can avoid this subject. Not even if they want to avoid it, because protests by environmental groups gave a lot of attention to the environment and the influence of the home improvement industry on future generations. Actually, Home Depot is the largest retailer of old growth rainforest wood in the USA. This issue of deforestation together with protest of for example environmental groups made the heavy weights in the home improvement industry to become 'green' and change their way of conducting business to gain in the public opinion. It made especially the heavy weights change, because most of the attention is aimed at these participants of the industry and so they have a kind of role model.
Also the deforestation holds a possible threat. It could be that although Home Depot is doing a lot of effort (together with effort -- > time & money) to be 'green', but that it does not change public opinion and that public does not buy (or buy less of) Home Depot's products because they know that it is not that good for the environment.
Impact on the community:
Another quite high effect Home Depot has is traffic congestion. This is a community problem, which have prevented a substantial number of Home Depot stores from opening on time or even at all. That is the difficulty of the industry Home Depot is in, it attracts lots of customers (with a car) and lots of trucks to deliver goods. It is an important and difficult issue to consider, because it can safe but also create a lot of problems. If Home Depot one forehand knows that a specific community will not allow a store being built can save a lot of time, problems and money afterwards.
Technological forces.
The best example we can come up with is the internet as a technological force. Almost all the (larger) participants in the home improvement industry spend time and money to be represented on the internet, because it is the general opinion that internet will result in lower cost. No one actually knows where internet is heading now and how to uses internet in a really successful way.
The most difficult problem Home Depot is coming across is the fact that it is rather difficult to adapt the physical home improvement products to a virtual world. The customers of DIY are not satisfied with just a picture and a description. These kinds of people want to feel, touch before buying.
Although it is difficult, businesses (including Home Depot) see the benefits of internet and understand that that it will change the way customers will do business with them. They want to be prepared now, or start to prepare for this change so that they do not be caught flat-footed. It may cost a lot now, but Home Depot (and others) are convinced that the returns in the future will pay back in full.
Another technical force that was and will be an opportunity is the productivity improvement programs. These kinds of programs are designed to make among others a more effective use of existing and new store space.
The last technical force that was and in our opinion will be an opportunity is the Electronic Data Interchange (EDI) program. This is a paperless system which processes electronically orders from store to vendors, it alerts the store when the merchandise is about to arrive and transmitted vendor invoice data. These kinds of programs save a lot of time, effort and paper of course.
Market forces.
On the internet we came across a model of Porter, showing what the characteristics of competition in the home improvement industry are. We will explain briefly each of the characteristics.
Rivalry among competitive firms:
The rivalry in the home improvement industry is rather high. The intense competition in the industry can be seen from for example the profitability ratio. The 5 year average of gross and net margin is only 29% and 5% respectively. Home Depot has a (5-10%) higher average than the industry, this is not that much higher compared to the good (the best) financial performance the company has.
There is almost now product differentiation, so the companies have to compete on for example: customer service, price, brand loyalty. A consultancy company revealed that the most successful companies in the home improvement industry showed characteristics as entering quick new distribution channels and the development of creative advertising campaigns. This is among others what Home Depot did/ does.
Potential entry of new competitors:
The home improvement market is quite fragmented. This means that there are opportunities for newcomers, the barrier to enter the market is rather low and then especially in parts of the market where the presence of firms as Home Depot do not exist. The part of the market where Home Depot or others like are situated, is hard to enter. Starting up a company in an industry like this is real expensive. Start up cost together with the costs to become and maintain ''green'' add heavily to the cost of a newcomer.
Potential development of a substitute product:
The main product in the industry was, is and at least for a while will be lumber. A lot of (older) houses need repair in the USA, but it is unlikely that especially for these kinds of houses another product than lumber will be used.
Bargaining power of suppliers:
Because there are many suppliers for this industry and because there is almost no product differentiation real bargaining power of suppliers does not really exist. Home Depot, as a real large retailer, has a certain power over its suppliers. The suppliers are dependent on the superstore Home Depot is. Dependent in that way that they need in this case Home Depot to survive.
Bargaining power of consumers:
The bargaining power of consumer is average in the home improvement industry. For small items they can go to many different hardware/ DIY etc store. For larger products the consumers are likely to go to one of the superstores like Home Depot. Bargaining power owned by consumers at these kind of stores is lower. Smaller competitors do not compete with Home Depot on the market for larger products, they know that they will not be able to compete on price, where most of the competition is fought in the home improvement industry.
Chapter 2: Internal analysis of Home Depot Inc.
What are the strengths and weaknesses facing Home Depot?
The strengths and weaknesses of the company are factors in the internal environment of a corporation. From the marketing point of view the strengths and weaknesses are the critical success factors within a corporation. They critically affect an organization's success and are measured relative to competition.
So, when searching for the strengths and weaknesses of a corporation, you are searching for the internal factors of an organization. This searching can be named, internal scanning of which the outcome will be an organizational analysis. By using a resource based approach, you will have to search for the critical strengths and weaknesses that are likely to determine if the firm will be able to take advantage of opportunities while avoiding threats.
The resources where the strengths and weaknesses can be found in the organization are for example, an asset, competency, process, skill, or knowledge controlled by the corporation.
We will show the strengths and weaknesses of Home Depot, by putting them in an IFAS model that stands for the Internal Factor Analysis Summary.
Key Internal Factors
WeightRatingWeighted ScoreComments
Strengths
Rapid Expansion.2051.00Outstanding growth in the last 5 years
Customer Service.154.45
Pricing.154.45Lower than competition
Product Range.104.40Wide and varied
Human resource policy.154.45High skilled personnel
Weaknesses
e-commerce activities.104.40Arrived late compared to other business to consumer companies
Customer retention.153.45Uncertainty that customers stick to HD concept
TOTAL SCORES1.003.6
Explanation to weight: 1.0 (most important) to 0.0 (not important)
Explanation to Rating: 5 (outstanding) to 1 (poor)
Strengths
Rapid Expansion
Home Depot expanded rapidly since their foundation. According a slogan which Alfred P. Sloan, past president of General Motors once said, "with a GM dealership on every corner, people are bound to stumble in".
From 1997 to 2000-2002 Home Depot opened 426 stores and so grew in stores with almost 70% during those years. Lowe's for example, which is Home Depot's main competitor, opened only 178 new stores and grew in stores with 40% during those years.
So, for rapid expansion we gave it the highest rate, because Home Depot is doing extremely well. The growth figures of the last 5 years show that. Home Depot is one or maybe more steps ahead of their biggest rival Lowe's.
Customer Service:
Home Depot is working hard to satisfy their customers at all times and so is working to improve their customer service always. As is mentioned in the case study of Home Depot, their customer service is differentiated from its competitors.
Home Depot has a strong belief that giving customers a high quality service, will lead to customer cultivation.
Home Depot's pricing
Home Depot's pricing is also a strength of the company. With their "Everyday Low Pricing" strategy, they are undercutting the prices of their competitors by as much as 25 %. So, Home Depot is always to more or less control the market on the bases of price.
Home Depot's Product Range:
Home Depot has a very wide range of products that they are selling on the market. Their product range exists out of about 40,000 to 50,000 products to serve the home improvement contractors, building maintenance professionals, interior designers, and other professionals. Further on, they have their product range for Do-It-Yourself customers (DIY customers), Buy-It-Yourself customers (BIY customers).
Nowadays it is an important factor to have a very wide product range. Customers nowadays rather go to a shopping centre where they can find everything they need under one roof. So, customers of Home Depot can find everything the need for their building, re-building etc. under the roof of a Home Depot store.
Home Depot's Human Resources Policy:
We can say that Home Depot has very high skilled employees. They are following several strategies to employ people that share a commitment to excellence by emphasizing the importance of the individuals to the success of the company's operations.
The process of attracting new employees is leaded by a very well structured plan. The applicants are asked to have very high standards. Next to this, Home Depot pays all its employees a salary that is without a certain surplus in the meaning of a commission. From Home Depot's point of view, when customers gets to know that a sales person gets a certain commission, the small customers would think that they are not worth dealing with. That's why Home Depot doesn't give any commissions on sales. However, they do give bonuses, but that is an addition to the salary, based on the turnover and does not concern one customer.
Weaknesses:
Home Depot's e-commerce activities
Compared to other Business-to-consumer companies, Home Depot started up its e-commerce activities very late. Such a big company as Home Depot should have been one of the first. We all know how important Internet nowadays is and still is growing.
Customer retention
Research done by Home Depot is showing that most do-it-yourself customers are not loyal to one particular building supply store. The do-it-yourself customers are always looking for the convenience of store location, product- quality and value and for low prices according to their needs and wants.
Ok, Home Depot has a wide spread of stores all over the USA and is offering its products to the customers at a low price level. However, customers will value themselves what the value a product will have for them and compare. So, it is always a threat that customers will go to a competitors store when knowing or finding out that a product over there has a higher value for them.
Chapter 3: Strategic forces.
What are the strategic factors facing Home Depot?
The chapter "Strategic forces" will summarise the strategic factors of a company by combining the external factors of the EFAS and the internal factors from the IFAS. The SFAS is a powerful analytical tool for the strategic analysis of a company. In the EFAS and IFES together only 20 internal and external factors were described. For the formulations of a strategy, 20 is too much. That is why the SFAS only consists of 10 strategic factors. This is done by putting the highest weighted EFAS and IFAS factors appear in the SFAS. In the first column the most important EFAS and IFAS items are listed. Behind the items a letter is put, which indicate whether the item is a strength (S), weakness (W), opportunity (O) or threat (T). The second column is also the same as for the EFAS and IFAS. It handles with the weight of the items. Also the total must be 1, meaning that some of the items will have to be adjusted. The third (rating) column is the same as for the EFAS and IFAS. Most of the ratings will be the same as in the EFAS and IFAS, although this is not always the case. Also the fourth column is the same.
The fifth column is a different one that the fifth of the EFAS and IFAS. This "duration" column indicates a short term (less than one year), intermediate term (1 till 3 years) or long term (3 years and beyond). The 6th column is the same as it was for the EFAS and IFAS. In the SFAS, the total weighted score has to be calculated. This is done on the same way as with the EFAS and IFAS, the same rule applies that the total weighted score for an average firm in an industry is always 3.
Key Strategic Factors
WeightRatingWeighted ScoreDuration
S I LComments
Rapid Expansion (S).155.75XOutstanding growth in the last 5 years
Customer Service (S).104.40X
Human resource policy (S).104.40XHigh skilled personnel
e-commerce activities (W).054.20XArrived late
Customer retention (W).103.30XUncertainty that customers stick to HD concept
Economy:
Growth (O).104.40XLast 8 years (at least till 2001)most influence on HD
Social forces:
Ageing homes & baby boomers (O).155.75XImportant market for Home Depot
Technological forces:
Internet (O).104.40XNew selling way, great outlooks
Legal/ political forces:
Traffic congestion (T).054.20XCan restrain shops to open(on time)
Market forces:
No product differentiation (T).104.40XForces HD to compete on certain issues
TOTAL SCORES1.004.20
Chapter 4: Core Competencies Home Depot Inc.
Does Home Depot has any core competencies? If yes, what are they?
Before showing what Home Depot's core competencies are, we'll first explain what is meant by a core competency.
A core competency of Home Depot, would be something Home Depot will be extremely good in. Activities that Home Depot as company can do exceedingly well. Core competencies can be seen as key strength. This means that all strengths of Home Depot will come back in this part of the report as well, as they were mentioned in the IFAS before.
Core competencies are also often called, core capabilities, because it includes a number of constituent skills of the company. The more core competencies that are used by a company, the more refined they get and the more valuable they become for the company.
Core competencies can be split up into two parts. They can be split up into, explicit knowledge and tacit knowledge. Explicit knowledge is knowledge that can be easily articulated and communicated. Tacit knowledge is knowledge that is not easily communicated because it is deeply rooted in employee experience or in a corporation's culture. Below we have declared the explicit competencies in the headings and the Tacit competencies are explain in the written part that belongs to the certain heading.
Core competencies can be found in the internal environment of a company. This means in the different departments of the company, like in Marketing, Finance, Human Resources, Operation & Logistics (Production) and Information technologies for example.
Rapid Expansion:
Home Depot expanded rapidly since their foundation. According a slogan which Alfred P. Sloan, past president of General Motors once said, "with a GM dealership on every corner, people are bound to stumble in".
Home Depot experienced the same as GM experienced. They rapidly opened a lot of Home Depot stores in a market and became the world's largest retailer in the Home Improvement Industry. We can conclude that Home Improvements rapid expansion strategy is a strength that gave them the opportunity to stay ahead of their competition.
This strength can be seen as the most important one of Home Depot, because Home Depot's competitors are also starting to follow a similar expanding strategy. However, until now, Home Depot has been more beneficial than its competitors.
One of the reasons why Home Depot is able to expand this rapid, is their very strong Balance Sheet situation. Home Depot also grew much faster than its competitors. From 1997 to 2000-2002 Home Depot opened 426 stores and so grew in stores with almost 70% during those years. Lowe's for example, which is Home Depot's main competitor, opened only 178 new stores and grew in stores with 40% during those years.
So, for rapid expansion we gave it the highest rate, because Home Depot is doing extremely well. The growth figures of the last 5 years show that. Home Depot is one or maybe more steps ahead of their biggest rival Lowe's.
So, we can say that Home Depot has Lucrative Store Locations & Large Number of Stores. To back-up their every day growing business, we added their expansion program for new opening stores in the appendix of this report.
Customer Service:
Home Depot is working hard to satisfy their customers at all times and so is working to improve their customer service always. As is mentioned in the case study of Home Depot, their customer service is differentiated from its competitors.
To improve their Customer Service, Home Depot hired high-qualified and helpful personnel, give professional clinics and called this kind of customer service "customer cultivation". These professional clinics are for example, the demonstrations of methods and techniques of performing a job safely and efficiently.
Home Depot also shifted a lot of work to be done to the night. Like shelf stocking and price tagging for example. This made it more convenient for the customers to walk through the aisles more easily. The employees of Home Depot were then able to be of service to the customers during the day. The availability of personnel to attend to customer needs is namely one clear objective of the Home Depot customer service strategy.
Home Depot uses several ways to serve its customers. By installing several kinds of computerised systems, like barcode scanning systems and minicomputers, the check out times of the customers was also improved. The checkout lines became shorter in length. It's a fact that long checkout lines annoy customers, which can become a factor of not going to Home Depot to do the shopping over there.
Next to the services mentioned above, Home Depot is having their own truck rental service and a tool rental service.
Home Depot's pricing
Home Depot's pricing is also a core competency of the company. With their "Everyday Low Pricing" strategy, they are undercutting the prices of their competitors by as much as 25 %. Their strategy is to send professional shoppers to check on which price level the competitors are selling the same products as Home Depot is selling them for. Home Depot does this regularly, so that they can anticipate on a lower price of the competition when needed.
For the biggest part of the pricing strategy Home Depot is following, they extremely depend on their suppliers. That's why they have a large number of suppliers, which actually, co-operate very well with Home Depot. Home Depot has about 5,700 vendors, from which they request a very high effort. There are very strict rules that the suppliers have to follow to be and to stay a supplier.
They can keep on requesting this very strict rules and asking this very high effort of its suppliers, because they give in return a tremendous turnover. This is once tested by an independent investigation company in a survey at a lot of manufacturers.
Home Depot's Product Range:
Home Depot has a very wide range of product that they are selling on the market for home improvement contractors, building maintenance professionals, interior designers, and other professionals. Further on, they have their product range for Do-It-Yourself customers (DIY customers), Buy-It-Yourself customers (BIY customers).
Their product range exists out of about 40,000 to 50,000 products. This is including differences in colours and sizes. What is so important next to their big variety and their wide range is the brand of the product. Home Depot sells products with brands that only they are allowed to sell on the market. They also sell products with their own Home Depot brand name. By following this strategy, they take care of the fact that products can not be copied by their competitors.
Home Depot's Human Resources Policy:
We can say that Home Depot has very high skilled employees. They are following several strategies to employ people that share a commitment to excellence by emphasizing the importance of the individuals to the success of the company's operations.
They attract their employees for new stores by placing advertisements in local newspapers and when more employees are needed, they display this at the stores that need more employees.
The process of attracting new employees is leaded by a very well structured plan. There is one day a week arranged, especially to do job interviews. An open application request is also possible for people with experience and then takes place via a so-called "on-the-spot" interview. The applicants are asked to have very high standards. They have to run through a variety of tests, which is the preemployment test that Home Depot installed into the process. The person will be for example tested on honesty, math and drugs.
Next to this, Home Depot has developed a system, which helps them to select the best-qualified people. The system screens people for competencies and characteristics, which fit into the Home Depot structure.
The salary that is paid to the employees is not given with a certain surplus in the meaning of a commission. From Home Depot's point of view, when customers get to know that a sales person gets a certain commission, the small customers would think that they are not worth dealing with. That's why Home Depot doesn't give any commissions on sales. However, they do give bonuses, but that is an addition to the salary, based on the turnover and does not concern one customer.
Home Depot also trains its own employees in times of changes within the company. Like this, the employees are also able to make progress within the company.
Tremendous Buying Power
Home Depot's market leadership provides them with a lot of advantages. One of these advantages is the tremendous buying power they have towards the suppliers. Which supplier wouldn't want to supply a market leader?
Because Home Depot buys in big quantities, they have this enormous power to set the conditions with the supplier, for example the delivery terms, in favour of their own hand.
Chapter 5: Distinctive Competencies Home Depot Inc.
Does Home Depot has a distinctive competency? If yes, what is it?
We are also first going to explain what a distinctive competency is, before we highlight them out of the Home Depot case study.
Actually, it is quiet simple what a distinctive competency is, however not less important. The distinctive competency of a company arises at the moment that the company creates it so well, that it is superior with this competency to those of its competitors.
Basically, a competency becomes a distinctive competency when it meets three tests. At first the customer value, which means that the company must make a disproportionate contribution to customer perceived value. Secondly the competitor uniqueness, which means the company must be unique and superior to competitor capabilities. And as last we mention extendibility, which means the company must have something that can be used to develop new products/services or to enter new markets.
Home Depot's distinctive competencies:
Rapid expansion:
Home Depot's first distinctive competency is its Rapid expansion. With this rapid expansion it is able to reach a lot of customers in their market. So, the customer perceived value will be that a Home Depot store is easy to reach.
Secondly, Home Depot is unique towards Lowe's Companies, which is Home Depot's biggest competitor. Lowe's Companies admits even on its website that it is the world 2nd large home improvement company. Although Lowe's Companies is also expanding rapidly, Home Depot is still expanding faster than Lowe's Companies is doing and so more unique.
And the last topic, the extendibility is no problem for Home Depot, because they have a very good balance sheet and so enough capital to expand.
Pricing:
As mentioned before, Home Depot often does research on their pricing level. This is done by professional shoppers. With their "Everyday Low Pricing" strategy, they are undercutting the prices of their competitors by as much as 25 %.
Customer perceived value at the price is that Home Depot is the cheapest. Home Depot is cheaper than Lowe's Companies and so unique to its competitor. And last but not least, Home Depot is checking regularly the prices of its competitors and so also able to be extendible when prices have to change.
Product range:
Home Depot is selling 40,000to 50,000 products in each of their stores. The customer perceived value on Home Depot's product range will be that they can find all the products they need for rebuilding or building under one roof.
The products are unique on the market, because of their brand name and the right which Home Depot is carrying, that only they are allowed to sell the products by those brand names. So, they are superior to competitor capabilities.
We may assume that Home Depot has enough extendibility possibilities to gain new products from the vendors and suppliers they have a business relationship with. With over 5,700 business relationships, there should be enough possibilities.
Chapter 6: Competencies transferred to different markets
What core competencies does Home Depot possess that can be transferred to the professional contractor market?
Competencies transferred to the contractor market:
Concerning the core competencies of Home Depot to the professional contractor market we can tell you that Home Depot has an extreme good customer service in this area. From commercial credit accounts to a fully staffed Commercial Desk, Home Depot has everything what it takes to get jobs done as they mention themselves.
Home Depot offers special credit accounts for the professional contractors. Via this technique, the customer can pay its bill online, which is off course very easy. No paper work, just a few clicks on the computer and the payment has been made.
The second core competency Home Depot has in its capabilities is its commercial desk services. This commercial desk is always possessed by Home Depot employees that have the right knowledgeable which are of top priority. They can help the professional contractors to get a job done and off course do this on time and on budget. You can reach the commercial desk by phone, fax or go and visit them at the desk itself.
When a professional contractor orders its good, they can request to have the product to be delivered at the site the professional contractor is working and this service is given seven days a week and in some cases, even 24 hours a day. Next to that, Home Depot has a 100 % hassle free return policy, which means that when a professional contractor is not satisfied with the product, they can return it always. They do not need to come up with a good and clear argument to get their money back.
Off course the competency of the wide product range of 40,000 to 50,000 is transferable to the contractors market. Next to this product range, Home Depot is able to offer its customers in the contractors market 250,000 additional special unique custom building and remodelling products, which they especially order then at Manufacturers. This last factor is an example of the Buying power that Home Depot has.
So, we can conclude that the following core competencies can be transferred to the contractors market:
*Customer Service
*Product Range
*Low Prices
*Human Resource Policy
*Buying Power
What core competencies does Home Depot possess to the planned smaller stores?
We found some information on the internet about the planned smaller stores. It is not a lot of information, so a real analysis what Home Depot competencies can be transferred to the planned smaller stores, is not possible.
These stores are planned to be situated in the cities and small communities and have a store space of about 25,000 square feet to 41,000 square feet. The normal average store is about 128,000 square feet. So, the size of the planned smaller stores is still less than half the normal size of a Home Depot store.
So, we can conclude that Home Depot cannot stall all its products in such a planned smaller store. They will have to limit the range of the smaller stores, to the products that really sell only. Because of their smaller size, Home Depot is probably not even able to store the bigger products like lumber.
Home Depot's outstanding customer service can off course be transferred to the smaller planned stores. People that live in the city will visit the stores and it is given that most people that live in big cities do not drive cars. That's why it is for example very important, to have a delivery service.
Core competencies transferable:
-Customer service
-Product Range (limited to the products that will sell in that area)
-Low Prices
-Human Resource Policy
What core competencies does Home Depot possess that can be transferred to the international market?
We think that for Home Depot, the most important competency that can be transferred to the international market is the rapid expansion competency. The US market is becoming quiet at this moment and so new markets have to be found.
Using their expansion experience from the past, they become bigger and bigger on the international market also. They are already quiet successful on the Canadian market with stores in seven provinces and have also almost 5 years of experience on the Mexican market. So, when using this same expansion strategy on those two markets, their name will become familiar worldwide.
Transferable competencies to the international market, are actually the same as Home Depot uses now working in their domestic market, the USA. They will only have to change the competencies a bit, depending on the culture of the country.
Chapter 7: Large box (endless selection) versus smaller stores (convenience).
This chapter will explain what the differences and similarities are between the big box stores and the smaller stores. A short explanation is dedicated to both chains.
In 1998 Home Depot opened four small outlets in New Jersey. These stores stocked tools, housewares and decorating accessories but no basics like lumber and appliances. Home Depot says that these 4 stores were a good learning experience, but the 4 stores are already converted into normal Home Depot stores. This does not mean Home Depot abandons the small store concept, they have now a ''urban format'' store. A difference compared to the first small store is the fact that this one does sells items as lumber but also urban necessities like closet organisers. As the store managers says:,, You have to put in what really sells, there is not much room for mistakes''.
The large box concept relies on its huge size and on the almost unbelievable amount of products it stocks. Customers can find here (depending on the store) almost 40.000/50.000 different kinds of products. These amounts of space and products are accompanied with an excellent customer service. Whole days can be spend in stores like this, to see what is offered and to make the ultimate decision. Some may think that these use stores do not work, but in for example Home Depot stores it is almost always crowded.
The smaller stores consists of square feet storage of 25.000 till 41.000. This is less than a third of the size of a normal average Home Depot warehouse. Not only Home Depot is trying to conduct business with smaller ''mini-me'' stores. Also Wal-Mart and Best Buy are doing this, and these are not in the same industry as Home Depot. This new way of doing business could be driven by real-estate restrictions and demographics. Another reason could be that the management of these large box retailers sees that although customers like the offers of a large box store and sometimes the low price that are coming with a large offer, they get kind of tired of spending Saturday afternoons walking through stores with the size of an airplane hangar. A third possible reason that retailers decide to use smaller stores to conduct business is the so-called Alexander complex. The reason for companies with an Alexander complex to use smaller stores is that they have no new worlds to conquer. If you as a company have already almost everywhere large stores and you want to grow more in some areas, it could sometimes be better to use smaller stores.
What are the differences and similarities between the two chains?
Large box storesSmall stores
-Shelves to the ceilingLower shelves
-Often have to walk throughWalk in, walk out
whole store to get what you want
-For lots of/ larger communitiesFor small communities
Almost all productsSelected products
Lots of every productavailableLess of every product available
All possible colours, sizes, shapes etc.Reduced range in colours, sizes, shapes etc.
Other advantages of the smaller store are: easier parking, less crowded aisles and quicker checkout.
Chapter 8: The home improvement industry.
In this chapter we will give a brief overview of the home improvement industry in the US. Furthermore, some conditions that were necessary to stimulate the growth of the industry will be given.
Brief overview of the home improvement industry in the US.
The home improvement industry is primarily focused on the selling of merchandise for personal and household consumption. According to the information we found (slightly outdated; 1999) the home improvement industry is still in its booming stage. The market structure shifted around 1999 from monopolistic to oligopoly.
A monopolistic market is a market in which many buyers and seller trade over a range of prices rather than a single market price.
An oligopoly market is a market in which there are a few sellers that are highly sensitive to each other's pricing and marketing strategies.
It shifted to an oligopoly because of among others the competitive strategies showed by most of Home Depot's direct competitors.
During the 90's all three components of the home improvement industry (namely; do-it-yourself, buy-it-yourself and professional) saw a large increase in sales. Highest growth of sales was seen in the home centres and maintenance service. Before the 90's, the largest part of the market focused on mass or medium-market building material and home improvement and garden projects. In the past five years, a trend can be seen in the development towards high-end design and renovations.
Conditions necessary to stimulate the growth of the home improvement industry.
The first item that comes to our mind concerning the stimulation of the growth of the home improvement industry is the economy. This factor is already extensively described in the chapter concerning opportunities and threats, so a rather brief comment is dedicated to this matter in this chapter.
In a growing economy, lots of people feel the need to refurbish/ renovate their houses. Of these people, a substantial amount will want to do this themselves. This part will visit retailers in the home improvement industry. In this way, the home improvement industry grows. A bad economy does not have to mean that the home improvement industry goes bad. Especially large retailers in the home improvement industry, offer '''recession proof''' products. Even in times of bad economy people want to refurbish/ renovate their houses. A reason could be that they can't or won't afford a new house. Of course the amount of people that will refurbish/ renovate their house in times of a bad economy will be less than in a good (growing) economy, but the part of these people who want to do it on their on is larger. This is because we assume that when the economy isn't that good, people probably have less to spend and do-it-yourself is most of the time cheaper (if you know what you're doing) than hiring a professional. The products of some of the largest retailers are '''recession proof''', because they offer the best and even in times where a bad economy is occurring, people want the best for their money.
Another item that made the home improvement industry grow is technological advancement. Research showed that not only Home Depot started with for example scanning systems to speed checkout time, productivity improvement programs etc. Home Depot as well as other players in the home improvement industry kept coming up with new systems and improve existing systems to fasten their processes, the lower costs etc. Because all these programs in the end also resulted in lower prices for customers, the products became more interesting, more people went to this kind of retailers and so the total home improvement industry grew.
A third factor that stimulated the growth of the home improvement industry was the good divided market. Home Depot and other large competitors had super stores. Other smaller competitors, knowing that they could not win competition from these large giants, looked for and entered niche markets. Because of the good divided market, the market was rather stable. Of course, there was (fierce) competition between the large stores and between the others in the niche markets, but it was more stable than it would have been the case if all the participants in the home improvement market would have been competing. The rather stable situation gave opportunity to grow in a rather peaceful way.
The fourth factor, which helped to stimulate the growth of the home improvement industry, was the changing needs of customers. This factor may be a result of the growing economy, especially in the last decade. Economy was growing, people had more money to spend, spended a lot on their homes -- > their most prized and expensive possession. It is our opinion that without the growing economy, this effect wouldn't arise. Another change in customer needs is the, as mentioned before, change from ''spend, spend, spend'' to a more value oriented one. This change in mentality means that they are not just spending, they want (the best) value for their money, also in home improvement products. Home Depot and others could offer this, more products sold, more profit, more investment and so more growth in the home improvement industry.
Chapter 9: Corporate Stock
Would you purchase Home Depot stock, why?
Introduction
In order to be able to make a good decision whether or not a companies stock should be purchased we should have a look at the key financial data of this company. In this chapter I will show you with some updated Financial data of the company as well as a professional stockbroker's analysis after which we can make a good evaluation whether or not the Home Depot stock is worth purchasing in the situation it is presently in.
The Home Depot stock analysed
In the first quarter of 2002, Home Depot reported earnings of $856 million, or 36 cents a share, up 35% from a year ago. On average, analysts had been projecting earnings of 33 cents a share, according to Thomson Financial/First Call, although many had brought up their estimates Monday after Lowe's reported earnings. Revenue was $14.3 billion, up 17% from last year's first quarter but slightly less than the $14.7 billion consensus estimate.
"While visibility to earnings growth remains clear through the next two quarters, more difficult comparisons are on the horizon -- beginning in the fourth quarter,". A highly respected stockbroker ones wrote. "The likelihood that earnings will decelerate is quite likely."
Meanwhile, Home Depot said it was comfortable with analysts' second-quarter Dividends projection of 47 cents a share. This was the only earnings guidance the company gave, a sharp contrast to Lowe's better looking forcasts for the remainder of the year. On Monday Lowe's raised earnings projections for both the second quarter and full year.
Home Depot's is currently quiet on the forecasting front had some investors worrying about a decrease in stock-price. Indeed, by virtually every measure, Lowe's outperformed Home Depot in the first quarter. Lowe's reported stronger earnings and sales growth. It also said same-store sales, which measure activity in shops open at least a year, were up 7.5%, while Home Depot said comps rose 5%.
Key Financial Data:
Price & VolumeValuation Ratios
Recent Price $26. OktPrice/Earnings (TTM)16.69
52 Week High $52.60Price/Sales (TTM)01. Mai
52 Week Low $23.18Price/Book (MRQ)03. Feb
Avg Daily Vol (Mil)14.84Price/Cash Flow (TTM)13.52
BetaJan 33
Per Share Data
Share Related Items
Earnings (TTM) $Jan 56
Mkt. Cap. (Mil) $60,702.34Sales (TTM) $24.83
Shares Out (Mil) 2,325.76Book Value (MRQ) $Aug 64
Float (Mil) 2,232.70Cash Flow (TTM) $Jan 93
Dividend InformationCash (MRQ) $Jan 72
Yield %0.92Mgmt Effectiveness
Annual Dividend0.24Return on Equity (TTM)19.44
Payout Ratio (TTM) %Dez 73Return on Assets (TTM)Dez 69
Financial StrengthReturn on Investment (TTM)17.66
Quick Ratio (MRQ)0.58Profitability
Current Ratio (MRQ)Jan 52Gross Margin (TTM) %30.83
LT Debt/Equity (MRQ)0.07Operating Margin (TTM) %10. Jun
Total Debt/Equity (MRQ)0.07Profit Margin (TTM) %Jun 30
Dividends Earnings Analysis:
HOME DEPOT INC (NYSE : HD)
Earning Estimates | Broker Recommendations
Earnings Estimates
Quarter Year
Last
Oct 2002This
Jan 2003Next
Apr 2003This
Jan 2003Next
Jan 2004
EPS:$0.40$0.31$0.41$1.57$1.79
Prior Year:$0.33$0.30$0.36$1.29$1.57
% Growth:17.50%3.15%12.96%21.66%14.35%
PE: 17.115.0
Quarterly Earnings History & Surprises
Oct 2001Jan 2002Apr 2002Jul 2002Oct 2002
Estimate:$0.33 $0.28 $0.33 $0.47 $0.40
Actual:$0.33 $0.30 $0.36 $0.50 $0.40
Difference:$0.00 $0.02 $0.03 $0.03 $0.00
% Surprise:0.00% 7.14% 9.09% 6.38% 0.00%
Earnings Estimate Range & Trend History
This Quarter
Jan 2003Next Quarter
Apr 2003This Year
Jan 2003Next Year
Jan 2004
Earnings Estimates
Avg Estimate:$0.31 $0.41 $1.57 $1.79
Low Estimate$0.29 $0.40 $1.54 $1.65
High Estimate$0.36 $0.41 $1.58 $1.90
# of Analysts18 6 19 21
Year Ago$0.30 $0.36 $1.29 $1.57
EPS Growth3.15% 12.96% 21.66% 14.35%
Consensus EPS Trend
Current$0.31 $0.41 $1.57 $1.79
7 Days Ago$0.31 $0.41 $1.57 $1.80
30 Days Ago$0.32 $0.41 $1.58 $1.85
60 Days Ago$0.32 $0.41 $1.58 $1.85
90 Days Ago$0.32 $0.41 $1.58 $1.86
Overall Buy-Sell advice
HOME DEPOT INC (NYSE : HD)
Earning Estimates | Broker Recommendations
Average Recommendation
This Week
1.90
Last Week
1.81
Change
0.09
(strong buy) 1.00 - 5.00 (strong sell)
Home Depot Stock price history
Final conclusion:
It seems that The Home Depot has not quite been able to live up to expectations of the professional stockbrokers. And the current shaky financial-economic situation should make everybody think twice about investing in any company what so ever.
The Key financial data look okay, but not really fantastic either.
I would say that an investment in Home Depot is quite risky at this time, especially if you are planning a long term investment. even if the Overall buy-sell advice is a moderate buy advice I would still consider other corporations as a better possibility/option then Home Depot .Lowe's for example might be worth taking a look at. So the final answer to the question if I would Purchase home depot stock would be that I would if I had find no other solutions, but i would take a real good look at other companies before investing in Home Depot.
Chapter 10: Competitor strategy
What competitive strategies is the company following?, Why?
Introduction:
When the retail building supply industry was moving from a market which was characterised by loads of little, independent ran firm's to one dominated by regional and national chains of vast superstores, The Home Depot developed the concept of the 'all-in-1 home-improvement discount warehouse' which was designed to be all things for all people. The main rival at the time was Lowe's which was originally a chain of smaller stores but transformed to the megastore-policy like Home Depot. Including, for example, Hechinger, BMC and Hughes Supply
Since 1997 the trend became that the two biggest competitors(Home Depot and Lowe's) became stronger while small local competitors where slowly disappearing from the market. This is Especially true for the 'Do-it-yourself' segment of the building retail market.Which was growing in importance quite rapidly.
The Building-retail market served 2 distinct clients :
1.The professional building contractor
2.The 'Do-it-yourself' homeowner
Now that the regular Building-retail market seems to be saturated all the competitors in the Building-retail market have now been searching for new battlegrounds to go into competition.
New battlegrounds are especially expansions to foreign markets (outside of the U.S.) and Technological Development.
Unfortunately there is not much we can say about the Strategy of the Home Depot since there is little information available. Which is understandable since no company will publish their information on how to battle the competitors. After all, The competitor is always listening.
However what we can do is listen to what some analysts and researchers have to say about the topic and compare company actions to one another. Which we will do in this chapter of our report.
We can say that The Home Depot has basically one major rival company which is by far the most important in the current situation, in the market which is Lowe's. Thus, most of the information in this chapter will be about the Competition between those two companies. We will tell you about the other competitors but it is fair to say that they have really no effect on the competitive strategy of The Home Depot and are therefore less interesting.
Competitive Technolgical Strategy
For years Home Depot, the nation's third-largest retailer, rolled out its bright-orange boxlike stores in an assembly-line fashion, opening more than 1,000 outlets since 1985. Lowe's was a distant runner-up in home improvement sales. And while other retailers scrambled to bring their businesses to the Internet, Home Depot barely bothered. Business was too good in stores for them as it was.
However, Home Depot stepped up its e-commerce efforts five months after Lowe's began pushing its products online. It's yet another example of how the No. 1 home improvement company is looking over its shoulder at a rival that company executives insist is irrelevant anyway.
At this point, the battle for Internet customers is pretty low-key. Officials at Home Depot and Lowe's decline to provide online sales numbers, though both companies admit the numbers are small so far. What's striking, however, is that the two have clearly identified e-commerce as a growth business and are putting more money into it even as they scale back in other areas.
Home Depot's annual report, for instance, notes that the company's administrative expenses as a percent of sales rose to 1.8 percent in 2000, from 1.7 percent the previous year, and it attributed that increase largely to spending on the Net. The difference sounds small, but it's significant for a company that has steadily cut administrative expenses over the past two decades and had total sales of $45.7 billion in 2000. And Home Depot's decision to roll out its e-commerce offerings nationally comes after eight months of testing in three cities that clearly left its executives with an appetite for more.
In turn, Lowe's is continuing to build its business on the Net. A few weeks ago, it opened a new portal, Accent & Style, which offers home decorating tips. If all goes as planned, the site will drive sales online and in stores.
Both companies emphasize that the Web has its limits, and each site offers only an abbreviated selection of items. Homedepot.com sells about 40 percent of the 50,000 items it stocks in stores; the Lowe's Web site carries about 35 percent of its total store inventory.
Below we can find a chart showing the Development in offline and online development of revenues.
IMPROVING HOME IMPROVEMENT
Lowe's has a long way to go before it catches up to Home Depot, but the challenger is growing fast.
OFFLINEHOME DEPOT LOWE'S
Revenue in 2000
(change from 1999)$45.7 billion
(19 percent) $18.8 billion
(18.1 percent)
Income in 2000
(change from 1999)$2.6 billion
(11.3 percent)$810 million
(20.4 percent)
Market capitalization$114.2 billion$24.4 billion
Stock change since Jan. 2+7.7 percent*+41.8 percent*
Stores1,100660
New stores opening in 2001200115 to 120
ONLINEHOME DEPOT LOWE'S
Launched nationwide April 2001 (pilot program in select cities started August 2000) November 2000
Products sold online/in stores20,000/50,00014,000/40,000
Visitors in March1,063,000 907,000
FulfillmentFrom stores in various cities; items are then shipped via UPS. From stores and distribution centers; items can be shipped or picked up at stores.
Delivery charge $4.91 for first 15 pounds; 43 cents each additional pound.As low as $4.93; increases with distance.
The Home Depot Inc. announced last week that it's embarking on a sweeping enterprise application integration (EAI). Which should enable the company to supply better and easier Cusomer service to customers (CRM). With the new system the Home Depot hopes to be better able to push customer relationships which is an initiative, analysts said have lagged in the retail market
Among its benefits, said Charlie Weston, director of information services at Home Depot, is that the company will be able to move data contained in MQSeries messages in as close to real time as possible, instead of in batches, which tend to clog its frame-relay network. It will also le While its EAI initiative is under way, Home Depot is moving ahead with a customer relationship management (CRM) application to match with the new EAI-computer system. The retailer said last week that in September its Tampa call center will begin using applications from Basking Ridge, N.J.-based Avaya Inc.
The application will let call centre agents access information about product pricing, delivery and installation schedules, said Ed Buter, senior manager of information services at Home Depot. He added that it should increase customer satisfaction, as well as free up store personnel.
However, Lowe's has had a call centre like such for a year already, using applications from another company called Remedy Corp based in Mountain View, Calif. This center can handle queries over the phone and via e-mail. Lowe's has also been experiencing with chat room capabilities and appliances for communication between store-owners and customers, but customers prefer to stick to e-mail
Analysts Opinion
Several analysts have said that in markets where Home Depot now directly competes with Lowe's -- such as Dallas, Seattle and Atlanta. They lost sales due to the "novelty effect," but that overall they were pleased with how sales kept up.
After all, Lowe's, with 785 stores, is seen having much greater store-growth potential than Home Depot, which runs close to 1,400 stores. By contrast, much of Home Depot's gains will have to come from less sexier ways such as cost cutting, revamping the supply chain and in-store initiatives.
The analysts preference for Lowe's over Home depot is justified when we look at the Stocks of both companies. Lowe's still trades at a slight discount to Home Depot, although it is a thin gap that narrowed even more recently. Which is strange if you concidder the fact that Home Depot is still about twice the size of Lowe's. Based on recent price levels, Lowe's trades at 23.2 times next year's estimated earnings, while Home Depot's price-to-earnings ratio is around 25.
Competitor analysis
LOWE'S
Lowe's Companies, Inc. is a $22 billion retailer of a complete line of home improvement products and equipment. The company serves more than seven million do-it-yourself and commercial business customers each week through more than 800 stores in 43 states. Lowe's is the world's second largest home improvement retailer and the 14th largest retailer in the U.S.
Lowe's is in the midst of an aggressive expansion plan, opening a new store on average every three days. The company's current store prototype has a 121,000-square-foot sales floor with a lawn and garden center averaging an additional 30,000 square feet. At the beginning of 2002, our retail square footage totaled approximately 81 million square feet.
In 2001, Lowe's opened 115 new stores, the majority of which were in metropolitan markets. In 2002, the company plans to open 123 new stores and continue its emphasis on cities with populations greater than 500,000, such as New York, Boston, and Los Angeles.
Lowe's is a Fortune 100 company, which means that it is ranked among the top 100 most valuable companies in the world our 56-year-old company employs more than 110,000 people. Approximately 7% of the stock is owned by employees through the company's Employee Stock Ownership Plan (ESOP) and its 401(k) plan.
LOWE'S POLICY STATEMENT: All employees of Lowe's are expected to be honest and act in good faith, and to conduct themselves in such a manner to avoid any situation in which his or her interest or the interest of his or her family might adversely affect the best interests of the Company. The following statements support this policy. All vendors and suppliers are also expected to support and comply with these policies. Failure to do so may result in discontinuance of business relationships.
HECHINGER
Hechinger was located in the mid-atlantic states and was recently acquired by Leonard Green & Partners. Hechinger had financial problems for several years before it was acquired.
BMC
BMC was renamed Building Materials Holding Corporation. The company had over 50 stores in 10 Western states and was focusing on the Professional market sector
HUGHES SUPPLY
Had 310 stores, Principally in Florida, Georgia and other southeastern states. The sales in 1997 were estimated to be $1,810,000,000 mainly because the company made some acquisitions in the year before which was good for an additional $340 million dollar.
A big Difference between Hughes and Lowe's and Home Depot is that Hughes is focussing mainly on the Professional market sector and is market leader in this sector.
Chapter 11: Corporate Strategy
What Corporate Strategy is the Home Depot following, and why?
Corporate strategy key issues
1 Directional Strategy (the companies overall orientation towards growth, stability or retrenchment?).
2. Portfolio Strategy: (The industries or markets in which the firm competes through its products and business units?)
3. Parenting Strategy: (The manner in which management coordinates activities and transfers resources and cultivates capabilities among product lines and business units?)
Directional Strategy:
Just as every product or business unit must follow a business strategy to improve its competitive position, every corporation must decide it's orientation towards growth by asking the following three questions.
1.Should we expand, cut back, or continue our operations unchanged?
2.Should we concentrate our activities within our current industry or should we diversify into other industries?
3.If we want to grow and expand, should we do so through internal development or through external acquisitions, mergers or joint Ventures?
A corporations'
Directional Strategy:
3 main Questions to be asked to the organization:
4.Should we expand, cut back, or continue our operations unchanged?
5.Should we concentrate our activities within our current industry or should we diversify into other industries?
6.If we want to grow and expand, should we do so through internal development or through external acquisitions, mergers or joint Ventures?
(1)The Home Depot integrates a dynamic corporate level strategy commensurate to its ability to sustain rapid expansion. Since inception in 1978, The Home Depot has enjoyed a 30% average annual growth rate. Their phenomenal growth rate is a partial product of their corporate level strategy. The Home Depot has primarily used a Growth / Concentration / Horizontal strategy to achieve unprecedented growth. The firm focuses on expanding their products into multiple geographic locations at the same point in their value chain, while simultaneously (2) increasing the range of products and services offered to current markets. For example, as the company penetrated markets throughout the U. S. Sunbelt, they experimented with enlarging their store's garden centers and initiated an "Expo Design Center" storefront. The expo centers are a geographic market niche, targeting upscale homeowners by utilizing computer-aided design technology (CAD) and offering top-of-the-line major kitchen appliances.
Occasionally, the corporate strategy follows a Stability / Short-term / Pause strategy to digest their rapid growth. From 1978 to 1983, The Home Depot grew from an idea to a nationally recognized leader in the do-it-yourself industry. Home Depot's CEO Bernard Marcus believed the only restraint The Home Depot faced was its inability to quickly recruit and train new staff.
The rapid expansion into the unknown territories of Houston and Detroit took management's attention away from the other stores and their earning dropped 40% in 1985. For a brief period in 1986, The Home Depot followed a geographically oriented Retrenchment / Survive / Divestment strategy in Detroit, Michigan. They withdrew from Detroit, by selling off their five brand new stores. After regrouping in 1987, The Home Depot returned to a horizontal growth strategy by opening six California and two Tennessee stores.
(3)The home Depot uses both an internal development strategy for expansion as an acquisition strategy. Although it has to be said that the internal Development strategy is most commonly used (especially in the United States). Acquisition is more common in foreign markets or If a region is unable to digest the cluster theory, in such a case, The Home Depot will modify their culture to make it compatible with the new strategy. For example, The Home Depot acquired Aikenhead's Home Improvements Warehouse chain in Canada, and then formed a joint venture with the company to insure a smooth transition of corporate cultures in Canada. In this way the Home Depot acquires the benefits of getting "Jump-started" in a foreign market as well as the availability of an existing corporate infrastructure and market.
Portfolio strategy:
The Home Depot Portfolio strategy is formed by the strategic plan laid down by the founders of the company as well as the store-owners who have to afdapt this system in order to match with local demand. The basic portfolio is being enforced on a store by the headquarters but after that the store managers have the opportunity to adjust their portfolio. So you see that the power is a bit Decentralized and that the store managers play an important part in the formation of the portfolio strategy.
The Home Depot's portfolio strategy focuses mainly on the non-specific goods. Home Depot aims to position themselves in the middle of the market in a very broad way. This enables them to supply homeowners, basic businesses and non-specific project construction. This is by far the most profitable segment of the market and especially if you are positioned in it so broadly as Home Depot is. This means that Home Depot also serves clients-demands who are semi-specific in nature (Think of for example a regular product with a specific characteristic such as a kind of screwdriver, a certain kind of lightbulb etc.). But also very normal and everyday products such as a christmas-tree. This aspect combined with the size and priceadvantages of Home Depot makes it almost impossible for any regular do-it-your-self'er to get around Home Depot So if you want to renovate your house Home Depot really is the best deal for most people.
However, the portfolio strategy cannot be the same all over the world, since there is such a thing as local housing characteristics especially in such a big country as the U.S. where the Home Depot gets most of it's revenues from. Moreover it is the case that there is no such thing as 2 similar houses or customers for that matter. The Home Depot specifies 2 factors that might affect such a change in demand. These are
1.Climate and the matter in which Seasonal changes are endured and effect life
2.Local style/ Prefered "look" of real estate
For Example of point 1 we can say that there is probably more demand for isolation materials in Canada then in Miami since the climate and normal whether conditions are completely different. One can also think of for example, Oklahoma where tornadoes are an annual phenomenon and a scare to homeowners. In such a region Home Depot will have to supply materials for building a hiding place, such as a cellar or a basement as well as information and instructing materials.
For example at point 2. We can say that there is a diffrence per region of what is being perceived as "beautiful" and what is "practical". For example a pool in the backyard is a common phenomenon in Florida and California but not in New York. This is because there is less space in New York then in Florida or California but also because of the climate. So you see a pool in New York is not practical whereas in Florida it is. On the other hand more people in New York might have a roof-terrace then in Miami. Which offcourse has an effect on the customer demand.
One might also think of the building styles, in Virginia, The building style is usually more like a typical European style (there are also a lot of old houses) with lots of elements of Baroque, and Roman style whereas in Miami, Art-Deco is more perceived as beautiful
Parenting Strategy:
The Home Depot's multidivisional organizational structure is collaborative with its current corporate structure. Advantages of the multidivisional structure include: emphasis of rapid growth, augmented facilitates management development and training, utilization of decentralized decision making, enhancements towards profit and loss responsibility and overall accountability. This system is more costly than other organizational structures, but The Home Depot's rapid growth and increasing profits warrant the added expense.
The Home Depot Management is layered so there are both vertical and horizontal linkages among the firm's management. The bottom of the structure consists of store department managers governed by one store manager responsible for delegating duties and upper management's directives. The store manager reports to a regional manager with connections to all the firms functional departments. The functional departments include information services, legal matters, advertising and merchandise accounting along with many other core functional departments. The functional departments are positioned on the organizational structure so that they are accessible by all of the stores through their regional manager, and positioned below the geographic divisional presidents and upper senior management. All of the operations departments share horizontal linkages facilitating data sharing through implementation of satellite communication systems and advanced computer network systems. Senior Management even has direct linkages to individual stores through their own television network, HDTV. This allows the senior management to receive feedback from local managers and allowed current training and communications programs to be viewed in individual stores.
One advantage of the multidivisional structure is the decentralization of decision making. This is widely used in the corporate cultural of The Home Depot. For example, corporate headquarters set individual stores up so that they were very similar, but individual managers could change a display or order more or less of a product if they could justify the change. Local managers also have the authority to help out in the community. Bernard Marcus believes that this constructs better positive relations with the stores surrounding community. Furthermore, a local store manager is more attune to community needs compared to a corporate vice-president. The decentralization fits well with the firm's rapid expansion corporate culture, because it places the decision making process closer to the new stores that necessitate quick decisions tailored to their new geographic market environment.
International Parenting Operations
The placement of international operations on The Home Depot's organization chart reveals that the firm treats international stores similar to those in the U. S. divisions. There are presidents for each geographic division in the U. S., a president for the Canada division and presidents for the Expo and Crossroads divisions. All presidents have direct linkages to each functional division.
Home depot created a Vice President for expansion into Mexico, and positioned the office on the same level as the functional divisions. This is because The Home Depot plans a cautious and slow expansion into Mexico, where they will pay special attention to Mexico's volatile economy and unskilled workforce. The Mexico division is not large enough to warrant a divisional president, but The Home Depot anticipates future success in Mexico, leading to expansion throughout Central and South America.
Leadership
The Home Depot employs a corporate culture that supports its strategy. The firm uses a cluster strategy to allow for their rapid expansion. This strategy intentionally cannibalizes sales of existing stores in a single market area, but it erects entrance barriers and spreads advertising and distribution costs over a greater store base, thereby passing savings on to the consumer.
If a region is unable to digest the cluster theory, The Home Depot will modify their culture to make it compatible with the new strategy. For example, The Home Depot acquired Aikenhead's Home Improvements Warehouse chain in Canada, and formed a joint venture to insure a smooth transition of corporate cultures in Canada.
In conclusion we can say that The Home Depot's growth strategy is complimented by the corporate belief that an individual can make a difference in the company. And an important value of the company is that everyone should be comfortable reporting to everyone
Chapter 12: The corporate culture of Home Depot.
In this chapter we are going to explain the corporate culture of Home Depot. At first we will try to explain briefly what a corporate culture is. Trying, because the definition of corporate cultures often differ. After that we will give the corporate culture as we could find it in the case itself. After that we will apply some theory on the corporate culture of Home Depot. After we will answer the questions dealing with the culture of home depot.
What is a corporate culture?
Before explaining what the importance of the corporate culture to a company is, first there must be a clear idea of what a corporate culture is.
A definition we found on the internet is:
The moral, social, and behavioural norms of an organisation based on the beliefs, attitudes, and priorities of its members.
Using the book Organisational Behaviour, by Robbins, we come to the following description of a corporate culture to which we mean if we talk about a or the corporate culture:
A corporate culture refers to a system of shared meaning held by members that distinguishes the organisation from other organisations. The system of sheared meanings, when looked closer, a set of key characteristics that the organisation values.
Corporate culture of Home Depot, using the case.
"Guess what happened to me at Home Depot?". The bond of Home Depot with its customers is showed. Home Depot calls its culture its: Orange- blooded culture. This orange-blooded culture is derived from the official colour of Home Depot. The orange-blooded culture is emphasizing individuality, informality, nonconformity, growth and pride. These items reflect those of the founders of the company who were, after being fired for just hours, starting up Home Depot. A lot of employees of Home Depot are quite young. They feel comfortable with this kind of culture, especially with the informality and nonconformity.
One of the directors of the company has the following statement:,, We know that one person can make the difference''. This statement shows the importance of the individual to the success of the whole company. That one person that can make the difference, it does not matter where he or she works. Working on the sales floor or a managing position, all can make a difference. To attract employees Home Depot provides excellent wages and benefits, superior training and advancement opportunities. Doing this Home Depot also encourages independent thinking and initiative.
Informality is as mentioned before one of the main items of Home Depot's culture. During meetings, there is always someone to make sure that it is not getting to formal -- > to make sure that the ties get properly trimmed. Another example of informality is that when executives visit stores they go alone, they do not take a lot of assistants and so on. A possible reason for the fact that there is a rather informal atmosphere, is that most of the executives worked on the floor before working themselves up. In our opinion this is a really good thing. It can motivate personnel. They can see/ work with/ listen to executives who worked on the floor themselves. This maybe has a better result of some thing has to be done. It is in our opinion more likely that employees would rather listen to an executive who worked on the floor him/herself than one that did not do so. Because of the informal atmosphere and the fact that most executives worked on the floor before working up, these executives are in the eyes of the employee highly approachable and they come often forward with suggestions and ideas.
In many areas of Home Depot, nonconformity is noticeable. Training employees at all levels is one of the best means of transmitting a corporate culture. Home Depot used this method extensively. Home Depot trained, other than most companies, carryout personnel as first. This because the person who helps the customer to the car is the last person perceived by the customers. Home Depot wants to make this last perception as positive as possible.
Another item in the corporate value of Home Depot is the rather decentralised management. This is of course also a part of the organisation of Home Depot, but we also like to see it as a part of the corporate culture. This item follows a bit the one of informality. Because of among others this informality there can be a rather decentralised management. People feel comfortable with this way of managing. Employees feel they can report to anyone. Because everyone feels that they can report to everyone, the informal sphere is reinforced. And this is as described before, one of the main items of the corporate culture of Home Depot.
Home Depot is built on values which encourage strong relationships with key customers. Management of Home Depot embraced the values of taking care of your people, encouraging entrepreneurial spirit, teaching each other with respect and being committed to the highest standards. The company is convinced that all employees posses these values.
It is not just a case that everyone involved with the company has to know these values, the values have to be believed and live!
For Home Depot, its culture is really important. The answer to the question how Home Depot could grow for so long so fast and still be successful was that aggressive growth requires adapting to change but continued growth requires to hold on to the culture and values of the company.
The culture of Home Depot is one that follows the strategy of the company. The strategy Home Depot is deploying is a cluster strategy. This strategy means that Home Depot kind of like cannibalize sales of existing stores in a single market area by putting another store in this area. This results in a higher entrance barrier for competitors and spreads advertising and distribution costs over more stores.
This is all confirmed by the following statement of Merrill Lynch:
"Home Depot's entrepreneurial culture and heavy dedication toward customer service, Combined with its large merchandise selection, has resulted in a retailer that leads its Industry by almost every performance measure".
Theory of Goffee and Jones applied on Home Depot's corporate culture.
There are many theories known to describe the corporate culture of a company. We would like to use research performed by Goffee and Jones. This theory is chosen by us, because we have seen it before and are a little familiar with it. Another reason why we chose to use this theory, is because the emphasis in these theory is on people (employees). This is in our opinion a good reason to take this theory, because as mentioned before, Home Depot is really focused on its personnel. Of course, a theory is not perfectly clear. Choices have to be made, sometimes a company is in between some dimensions. Al the theories we are familiar with have this shortcoming, in our opinion all theories have this. But so be it.
Goffee and Jones have identified 4 different cultural types. These four different cultures are all built on 2 dimensions. These two dimensions are: sociability and solidarity. According to the two researchers these two dimensions underlie organisational cultures.
Sociability:
This dimension is a measure of friendliness. If this factor is high, it means that people do things for one other without expecting something in return and relate to each other in a friendly, caring way. Sociability is consistent with a high people orientation, high team orientation and focussing on processes rather than outcomes.
Solidarity:
Solidarity is a measure of task orientation. If the solidarity in a company is high, this means that people can overlook person preferences/ tendencies etc. and go for the common interests and goals. Solidarity is consistent with high attention to detail and high aggressiveness.
These two dimensions can be translated into 4 cultures. These are given in the matrix below.
Networked culture: (high on sociability and high on solidarity)
Organisations with a culture like this see members of the organisations as family and friends. The people in the organisation know and like each other, they are willing to help each other and information is shared openly. A negative aspect of this kind of culture is that the focus on friendship can lead to a tolerance for poor performances and creation of political cliques.
Mercenary culture: (low on sociability and high on solidarity)
If a company has a culture like this, it means that it is fiercely goal focused. People are intense and they are determined to reach the goals. They have this extra thing that makes them getting things done quickly and creates a powerful sense of purpose. Mercenary cultures are not about wining, they are about to destroy the enemy. The tough focus on goals and objectivity leads also to a minimal degree of politicking. The negative part of these kinds of cultures, is that it can lead to almost inhumane treatment of people who are seen as low performers.
Fragmented culture: (low on sociability and low on solidarity)
Individualists make the organization with a culture like this. The commitment in a company like this is to individual members and their job tasks. There is almost no identification with the organization. Employees are judged solely on productivity and the quality of their performances. Negatives issues of these kinds of cultures are excessive critiquing if others and an absence of collegiality.
Communal culture: (high on sociability and low on solidarity)
Friendship and performance are both valued in companies where a culture like this is found. People of the company have a feeling of belonging to the company, but there is still a rather ruthless goal on achievement. The leaders of these kinds of organisations tend to be inspirational, charismatic and have a clear vision on the future of the organisation. Downside is that cultures like this often consume the total life of an employee. Charismatic leaders of companies with a communal culture sometimes seem to look for disciples in stead of followers, resulting in a working climate that looks a bit like a cult.
Home Depot is...
It is our opinion that Home Depot is a communal culture. We came to this conclusion because of the following reasons. First of all, the case made it clear to use that personnel is really important to Home Depot. It is highly valued that the employees perform according to the norms set, but also that they enjoy the work, working with others and customers. To create this, Home Depot is willing to do a lot. Not only concerning work itself, but also the relation between the employees. The informal atmosphere at Home Depot attributes to this. If personnel feel comfortable, like the work, working with colleagues, friendship is rather quick established.
Another really important item for Home Depot is performance. The company grew for a long time, really fast. This can not be done without striving for increasing performance (this can be in quality and quantity). Increasing, because of staying ahead of competition, to show via the increasing performance that the company is willing to do its utmost best for the customer. The fact that Home Depot was quite early with programs to increase for example productivity, shows that Home Depot focuses on (the best) performance. As they mention themselves;
We want to be on of the most successful retailers in the world.
A lot of things are needed to achieve this, (increasing/ the best/ focusing on) performance is definitely one of those.
What is the importance of corporate culture to Home Depot?
In our opinion, this question could be rephrased as:
,,What is the importance of corporate culture to companies? ''
We think that the question could be rephrased like this, because it is our opinion that the corporate culture, together with the norms and (core) values, form basics of the identity of the company. Almost everything the company does can related to the identity of a company. The identity is divided in several layers. There is the overt level, intermediate level and covert level. The order shows how visible the items in those levels are. Items in the overt level are highly visible. Items in this level consist of behaviour, opinions and do's and don'ts. Items in the intermediate level consist of priorities and opinions. These items are rather difficult to perceive. The last level, the covert one, consist of the following items; ethics, norms and values. These items can not be seen. Concluding this paragraph, we can say that in our opinion the corporate culture is really important for Home Depot, because the corporate culture forms one of the basics of the identity of a company. Almost everything a company does, comes from/ can be derived from the identity of a company.
Can the corporate culture be transferred to the new, smaller stores?
We can not see reasons why the corporate culture can not be transferred to the new, smaller stores. The information available about theses smaller stores gave us the idea that the way of doing business in principle is the same as the larger stores. Personnel and customers are still very important for example.
In a country there can be differences in the culture, especially in a large country as the US. These differences can be overcome usually. The items in the covert level of a (company) culture are hard to transfer, but it is manageable. In the new smaller stores new personnel will have to be hired. Before personnel is hired to work at Home Depot's, they will have an interview and have to make some preemployment tests. It is in our opinion doable to try to make clear to the possible new employee what the corporate culture is and what will be expected from this person. There are also tests available which can show which kind of culture a person has. Of course, these tests and trying to make sure that the possible new employee knows what will be expected and what the corporate culture is, can't tell 100% accurately if the person will fit in with the corporate culture. What these items can do however, is to make it easier to ''transfer'' the corporate culture. Not only people with the same or almost the same (corporate) cultures have to be hired. This is quite hard and not necessary. (corporate) Cultures can be taught up to a certain limit. Up to a certain limit because to covert level is almost impossible to transfer.
Can the corporate culture be transferred internationally?
This question is hard to answer. In the previous question, we had to do with the transfer of the culture in the same country. Of course there can be differences in culture in a country, especially in a large country as the US, but these differences are usually recoverable. The differences in culture between the US and other countries are substantial and sometimes not recoverable. An example of a difference between US and most countries in Europe is that Americans are more individualistic. Another example is that Americans are more do-ers than be-ers. Doing v. Being is the question of do you live to work or do you work to live. The Americans are do-ers (so are most countries in Europe, but way less than the Americans). In the States you really are important if you have professional success, lot of properties and respectable positions. The fact that Home Depot takes excellent care for its personnel is an example that will appeal to other countries.
Although that there are some similarities between the US (company) culture and the (company) culture of for example Europe, the differences outweigh the similarities and that is why we assume that the corporate culture of Home Depot can not (exactly) be transferred to other countries. Not exactly because in principle the first two levels of a corporate culture can be transferred/ taught to other people/ countries etc, the covert level however can not be taught/ transferred to other people/ countries etc.
Chapter 13: Strategic Managers
How important are the current strategic managers to the success of the company?
Introduction:
In this chapter we will try to explain to you how important the role of the strategic managers is, in the organisation of Home Depot. In order to do this we will first explain how the management works and functions within the organisation as a whole. Then, I will explain what the role of strategic managers is in order to answer the question about the importance of strategic managers.
How the management works
The Home Depot Management is layered so there are both vertical and horizontal linkages among the firm's management. The bottom of the structure consists of store department managers governed by one store manager responsible for delegating duties and upper management's directives. The store manager reports to a regional manager with connections to all the firms functional departments. The functional departments include information services, legal matters, advertising and merchandise accounting along with many other core functional departments. The functional departments are positioned on the organizational structure so that they are accessible by all of the stores through their regional manager, and positioned below the geographic divisional presidents and upper senior management. All of the operations departments share horizontal linkages facilitating data sharing through implementation of satellite communication systems and advanced computer network systems. Senior Management even has direct linkages to individual stores through their own television network, HDTV. This allows the senior management to receive feedback from local managers and allowed current training and communications programs to be viewed in individual stores. The CEO, Bernard Marcus, emphasizes a relaxed corporate culture, so that every manager felt like they could report to anyone.
One advantage of the multidivisional structure is the decentralization of decision making. This is widely used in the corporate cultural of The Home Depot. For example, corporate headquarters set individual stores up so that they were very similar, but individual managers could change a display or order more or less of a product if they could justify the change. Local managers also have the authority to help out in the community. Bernard Marcus believes that this constructs better positive relations with the stores surrounding community. Furthermore, a local store manager is more attune to community needs compared to a corporate vice-president. The decentralization fits well with the firm's rapid expansion corporate culture, because it places the decision making process closer to the new stores that necessitate quick decisions tailored to their new geographic market environment.
Executive Succession
The Home Depot typically promotes from within the company. Managers start in local store departments and move up the ranks from there. The organizational structure is linear and breeds individuals that have knowledge learned from the ground up. The Home Depot uses a "staffing follows strategy" approach and promotes managers that fit the relaxed corporate culture environment. They also match managers to strategies. For example, Bell Peña was hired as Vice-President of Mexico because he had extensive Mexican retail experience.
The Home Depot should be well prepared if Bernard Marcus, Arthur Blank and / or Ronald Brill left the firm. They are the originators of The Home Depot, but over the firm's existence they have cultivated a firm with a clear corporate strategy backed by a successful corporate culture. Currently, The Home Depot has long term goals and objectives backed by a prominent executive succession and training program that could implement the goals if the three senior executives left the firm.
The Importance of the Strategic Managers
Basically the strategic managers have 2 main functions:
1.To design business concepts and business processes that give the company direction, a concept and structure which enables the company to distinguish itself and achieve success more easily
2.To be a Watchdog for the business processes to work smoothly, anticipate to changes in the environment of the company and to solve operational problems related to the business process, or concept.
According to the Management of Home Depot, they like to concidder themselves as really not so important at all. They seem to have the philosophy that the real work and the real success of the company depends on the people who deal with the customers every day in the stores and not so much of what the Strategic managers in the Headquarters come up with. Employee's at home Depot are encouraged and invited to come up with new practically applicable ideas. And this approach has proven to be successful.
Eighty-five percent of the good ideas at Home Depot come from the Sales force, so it seems that management take a position of moderators for ideas that come from the people who have to work with the concept every day. with.
So I guess it is fair to say that the importance of the Strategic managers at Home Depot is not so much to lead the company in a certain direction but more to be a moderator or a referee if you will for other people's ideas and.
Also, Strategic managers at Home Depot also have the function of Decision makers in the case of big decisions. For example they can decide where a new store will be built or whether an existing store can expand or not as well in the case of an approaching acquisition or merger, strategic managers have important vote in the final decision.
Literature used.
http://recenter.tamu.edu/pdf/1268.pdf
http://www.cio.com/archive/050198/shop_content.html?printversion=yes
http://www.informationweek.com/701/01iucul2.htm
http://www.primesmoked.com/tim/writing/hdepot.html
http://www.auxillium.com/culture.shtml
http://www.ituedu.ca/emba/materials/strategic_management_and_busines.htm
http://www.multexinvestor.com
http://www.broadvision.com
http://www.google.com
http://www.homedepot.com
http://www.lowes.com
http://www.businessweek.com
http://www.financialtimes.com
http://www.actionpoint.com/services/support/hd.asp
http://technidigm.org/essays/jhu/tech/strategic.ppt
Case Study: Home Depot; The Home Depot Team
Case 24: The Home Depot, Inc: Growing the professional Market (Revised)
Essentials of Strategic Management, by J. David Hunger and Thomas L. Wheelen
Organisational Behaviour by Stephan P. Robbins 9th edition