HOME DEPOT
GROUP 2
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Dillon Shepley
Jayson Brayall
Jeff Austin
Jeff Taylor
Benjamin Howard
I. CURRENT SITUATION
DILLON SHEPLEY
A. Current Performance
The company continued to expand and topped many company records in 2005
including earnings per share, operating margin and net earnings records. They
retained the spot as the world’s largest home improvement retailer and the
second largest retailer in the United States behind Wal-Mart.
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Opened more than 900 stores from 2000-2005
Sales increased from $45.7 billion in 2000 to $81.5 billion in 2005
Earnings per share more than doubled in the same time
Employed 345,000 associates
Average sales per customer ticket reached 57.98, an all-time high
1,832 Home Depot stores
Went from 0 to number 3 in the core appliance market share
I. CURRENT SITUATION
DILLON SHEPLEY
B. Strategic Posture
1. Mission:
• The Board of Directors (the "Board") of The Home Depot, Inc. (the
"Company") is committed to maximizing long term shareholder
value while supporting management in the business and
operations of the Company, observing the highest ethical standards
and adhering to the laws of the jurisdictions within which the
Company operates.
• Strong Business Code of Conduct and Ethics
I. CURRENT SITUATION
DILLON SHEPLEY
B. Strategic Posture
2. Objectives
• Enhancing the Core, extending the
business and expanding the market.
• Maintain and grow its leadership
position in the home improvement retail
worldwide.
• Become the nation’s largest diversified
wholesale distributor
• Become number one in services
• Become the largest home improvement
retailer in both Canada and Mexico.
• Increase direct-to-consumer channels
• Compounded annual sales growth of
9%-12%
• Compounded earnings per share
growth of 10%-14%
• Open 400-500 new stores
• Increase operation margin
• Have a cumulative operating cash
flow of $50 billion
• Cumulative capital expenditures of
$17-20 billion
• Grow Home Depot Supply sales
• Increase efficiency
• Increase number of customers
applying for credit
I. CURRENT SITUATION
DILLON SHEPLEY
B. Strategic Posture
3. Strategies
• Introduced self checkout, Back End
Automation and Re-engineering and
centralized automated replenishment.
• Acquired 21 companies
• Remain prepared for weather
phenomenon such as hurricane Katrina.
•Served both the Do-It-Yourself (DIY) and
Do-It-For-Me (DIFM) customer.
• Better serve the professional customer.
• Modernize the stores while updating
their product lines.
• Expand into multiple channels.
• Expand into new markets.
• Use technology to increase
efficiency examples in clued
computerized point of sale system,
electronic bar code scanning system,
and a UNIX server.
• Become Sustainable.
• Differentiate itself from its
competitors through customer service.
• Employ only highly qualified and
helpful employees.
• Demonstrate methods and
techniques of performing a job safely
and efficiently to the customer.
• Offered credit programs and
reduced charge card approval process
time.
I. CURRENT SITUATION
DILLON SHEPLEY
B. Strategic Posture
4. Policies
Main policies
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Improve everything we touch
Superb Service
Be a good corporate citizen
Behave Ethically
Act with integrity
After Bob Nadelli
• Centralized management
• Organize the company
• Emphasis on military
efficiency
• Hire veterans
• Disciplined manager corps
Prior to Bob Nardelli in December of
2005
• Decentralized management and
decision making.
• Entrepreneurial innovation and risk
taking.
• High levels of employee commitment
and enthusiasm.
• Bond with customers and the
communities
• Orange-blooded culture which
emphasized individuality, informality,
nonconformity, growth and pride.
II. STRATEGIC MANAGERS
JAYSON BRAYALL
A. Board of Directors
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Robert Nardelli
John L. Clendenin
Gregory D. Brenneman
Claudio X. Gonzalez
David H. Batchelder
Kenneth G. Langone
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Angelo R. Mozilo
Thomas J. Ridge
Laban P. Jackson, Jr.
Lawrence R. Johnston
Helen P. Johnson – Leipold
Bonnie G. Hill
Milledge A. Hart
II. STRATEGIC MANAGERS
JAYSON BRAYALL
A. Board of Directors (continued)
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Majority of directors on the board
Nardelli taking advantage of Home Depot’s
publically traded stock.
During the 2006 AN meeting, the Board
was strongly accused of lacking
independence and indeed did not
participate in person.
II. STRATEGIC MANAGERS
JAYSON BRAYALL
B. Top Management
1. The case and the 2006 Annual Report list the following as the
managers of Home Depot. The majority had greater than three
years with the corporation.
• Management experience came from diverse external backgrounds
• The internal experience base has been selected from medium to long term
managers
• Top management’s has established a strategic approach to corporate
management.
• Nardelli was empowered to bring on like minded upper level managers to
match his vision.
• Home Depot’s future as the industry leader was openly questioned
• No information revealed the amount of executive stock held, with the
exception of Nardelli.
• During FY 2006, six uncertified, class actions were filed
• The company has longed been known for its good corporate citizenship.
II. STRATEGIC MANAGERS
JAYSON BRAYALL
B. Top Management
2. The annual report identifies the following as management for
Home Depot. It also lists a separate listing of what it calls the Home
Depot Leaders.
• Roger W. Adams
• Francis S. Blake
• Timothy M. Crow
• Joseph J. DeAngelo
• Robert P. DeRodes
• Marvin R. Ellison
• Craig A. Menear
• Bruce A. Merino
• Paul Raines
• Ricardo Salvidar
• James C. Snyder, Jr.
• Carol B. Tom’e
• Annette M. Verschuren
II. STRATEGIC MANAGERS
JAYSON BRAYALL
B. Top Management
3. The following is an additional listing taken from the Annual Report
but not clarified in the text
• Ms. Diane S. Dayhoff
• Mr. Brad Shaw
No historical or biographical information was published
EXHIBIT #5
JAYSON BRAYALL
Exhibit #5A
2007
2006
2005
Net Earnings
Reconciliation of Net Earnings to Net Cash Provided by Op Activities:
5,761
5,838
5,001
Depreciation and Amortization
Impairment Related to Disposition of EXPO Real Estate
Stock-Based Compensation Expense
Changes in Assets and Liabilities, net of the effects of acquisitions:
1,886
0
297
1,579
78
175
1,319
0
125
96
(358)
(266)
Increase in Merchandise Inventories
(563)
(971)
(849)
(Increase) Decrease in Other Current Assets
Increase in Accounts Payable and Accrued Liabilities
(225)
531
16
148
29
645
(Decrease) Increase in Deferred Revenue
(123)
209
263
(Decrease) Increase in Income Taxes Payable
(172)
175
2
Increase (Decrease) in Deferred Income Taxes
(Decrease) Increase in Other Long-Term Liabilities
46
(51)
(609)
151
319
119
7,661
6,620
6,632
FY Ends each January(amounts in $M)
CASH FLOWS FROM OPERATING ACTIVITIES:
Decrease (Increase) in Receivables, net
Net Cash Provided by Operating Activities
III. EXTERNAL ENVIRONMENT
JEFF AUSTIN
A. Natural Physical Environment: Sustainability Issues
• The elimination of unnecessary packaging, along with recycling, has helped
Home Depot in their bid for sustainability. They have also worked with training
employees and customers to educate them on the importance of conservation
and resource efficiency as well minimizing environmental health issues and
safety risk associated with them. They are definitely trying to be a leader on the
forefront when dealing with sustainability.
• The reaction to Hurricane Katrina’s devastation shows how the natural
environment could affect Home Depot business and it’s relation with the local
community in particular. This is just one example from the text. Imagine if a
tornado ripped through a town or a volcanic eruption disturbed Seattle area as
it did in 1980. Home Depot would be affected by any of these natural disasters.
III. EXTERNAL ENVIRONMENT
JEFF AUSTIN
B. Societal Environment
a) Economic
• Economic models established by company helps determine direction of
industry (O)
• Near record level in home ownership increases demand for DIY projects (O)
• Expansion into Canada & Mexico offers new stakeholders/consumers (O)
• Sales changed seasonally, winter being a low-growth quarter (T)
III. EXTERNAL ENVIRONMENT
JEFF AUSTIN
B. Societal Environment
b) Technological
• Installation of self checkout kiosk decrease time in store and minimize
person to person contact (T)
• Internet became another channel for consumers to purchase products
(O)
• Addition of point-of-sale system, electronic bar code, and a UNIX server
assisted in efficient tracking a buyer trends (O)
• A second technology center was opened in Mexico (O)
• Overall upgrades to financial services in Mexico, call centers, and
websites help advance sales and revenue tracking (T)
c) Political/Legal
• CEO are compensated up to 50% bonuses annually (T)
• Managerial level employees receive at a minimum 25% incentive pay (T)
• Floor workers and lower level employees receive no bonuses (T)
III. EXTERNAL ENVIRONMENT
JEFF AUSTIN
B. Societal Environment
d) Socio Cultural
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Employees have opportunity for a cradle to the grave job (O)
Train employees based on a bottom-to-top sequence (O)
Informality among employees prior to Nardelli (T)
Huge contributor during Hurricane Katrina relief (O)
CommUnity Grants cleaned up play ground for children (O)
Even though Home Depot has expanded outside the US borders, they still
haven’t left North America. These factors have not been tested elsewhere.
III. EXTERNAL ENVIRONMENT
JEFF AUSTIN
C. Task Environment
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Threat of new entrants – Low
Bargaining powers of buyers – Medium
Threat of substitute products or service – Low
Bargaining power of suppliers – Medium
Rivalry among competing firms – High
Power of unions, government, special interest groups – Medium
EXHIBIT #1
JEFF AUSTIN
D. Summary of External Factors
Weight
Rating
Weighted
Score
Record-level home
sales
0.2
4
0.8
Addition of UNIX
0.05
2.8
0.14
Employee training
0.1
3.6
0.36
Katrina relief
0.15
3.2
0.48
Expansion across
borders
0.1
2.5
0.25
Self-checkout kiosk
0.1
3
0.3
Employee
compensation
0.15
4.5
0.675
Change in seasonal
sales
0.05
2.8
0.14
Informality among
employees`
0.1
2.5
0.25
Totals
1
External Factors
Opportunities
Threats
3.395
Comments
IV. INTERNAL ENVIRONMENT: STRENGTHS AND
WEAKNESSES
JEFF TAYLOR
A. Corporate Structure
• Management consists of a 13 member leadership team. These 13
Executive Officers work together to successfully manage the company.
• CEO Robert Nardelli is very involved in every managerial decision. He gives
the final word on what percentage of full time and part time employees he
wants and where he wants them.
IV. INTERNAL ENVIRONMENT: STRENGTHS AND
WEAKNESSES
JEFF TAYLOR
B. Corporate Culture
• Home Depot emphasized an “orange-blooded culture” that emphasized
individuality, informality, nonconformity, growth, and pride. This was promoted
by to of the company founders, Bernard Marcus and Arthur Blank.
• The senior executives recognize the amount of young people that work for
the Home Depot and they want these employees to feel comfortable, relaxed,
and secure in their positions.
• When Bob Nardelli took over, he did away with the former concepts of this
decentralized entrepreneurial venture. He brought a more rigid structure to his
employees.
• Staff strongly opposed the changes made by Nardelli and 98% of the top
executives left the company.
IV. INTERNAL ENVIRONMENT: STRENGTHS AND
WEAKNESSES
JEFF TAYLOR
C. Corporate Resources
1. Marketing
• Offer a wide array of high-quality goods at low prices, while offering help from
knowledgeable and helpful employees.
• They used sponsorships that were viewed by millions including: NASCAR, U.S.
Olympics team, and ESPN College Gameday.
• Offered service to three primary customer groups: DIY (Do IT Yourself)
Customers, DIFM (Do It For Me) customers, and Professional Customers.
IV. INTERNAL ENVIRONMENT: STRENGTHS AND
WEAKNESSES
JEFF TAYLOR
C. Corporate Resources
2. Finance
• In 2005 sales increased almost 100% from 2000 to reach $81.5 billion.
• Since 2000 nearly $13 billion was returned to shareholders in the form of
dividends and share repurchases.
• Average ticket sale hit an all time high in 2005 reaching $57.98 per customer.
• Common stock actually dropped by 30% since Nardelli took the company over.
• Nardelli is amongst six other CEOs who Fortune magazine identified in an
article entitled, “The Real CEO Pay Problem”. He had given himself pay and
benefits exceeding $13 million in value annually.
IV. INTERNAL ENVIRONMENT: STRENGTHS AND
WEAKNESSES
JEFF TAYLOR
C. Corporate Resources
3. Research and Development
• In 1990 Home Depot tested a new Store Productivity Improvement program
designed to improve storage and merchandise replenishment on the floor.
• They tested renovations that would enhance customer access, reduce
customer shopping time, and streamline merchandise stocking and delivery.
4. Operations and Logistics
• Service objectives were focused around the Do It Yourself idea. Management
wanted the customers to feel confident in themselves to do the job through the
guidance they receive from the employees.
• They offer power tool and truck rentals, Do It Yourself plans, Do It For Me
plans, Commercial customer sales, and skillful and knowledgeable employees at
the customers disposal.
IV. INTERNAL ENVIRONMENT: STRENGTHS AND
WEAKNESSES
JEFF TAYLOR
C. Corporate Resources
5. Human Resources Management
• As of January, 2006, Home Depot employed 345,000 people. 68% of these
employees are full time and the rest are part time.
• There are no unions, as the employee relations with the company are very
good.
• Company goal is to maintain employee turnover at no more than 20%.
6. Information Technology
• Each store contains the typical point-of-sale system, bar code scanning
system, and a UNIX server.
• The charge card approval waiting time was recently reduced to less than 30
seconds to speed up customer check out time.
• Home Depot continuously searches for updates to its information systems to
accompany its growth and reduce its control costs.
EXHIBIT # 2
JEFF TAYLOR
EXHIBIT 2
Internal Factors
Weight
Rating
Weighted Score
Comments
Skilled, happy employees
0.15
4.00
0.60
Want to help
Involved senior management
0.10
3.00
0.30
Important
Product selection
0.20
4.50
0.90
Wide variety
Service options
0.15
3.50
0.53
DIY, DIFM
Good advertising
0.15
3.40
0.51
Widely viewed
New CEO management method
0.10
3.50
0.35
Original employees unhappy
Employee Retention
0.05
2.00
0.10
High turnover rate
Overpaid CEO (public issue)
0.10
3.00
0.30
Public is unhappy with this
Strengths
Weaknesses
Total Scores
1.00
3.59
V. ANALYSIS OF STRATEGIC FACTORS
BENJAMIN HOWARD
A. Situational Analysis (SWOT)
1. Strengths
• Rapid Deployment
• Predictable and profitable growth
 Strongest balance sheet
• Number 3 in the core appliance market share
 Secured 10% of the U.S. Market
• Largest home improvement retailer
 Canada & Mexico
• Served three primary customers
 Do-It-Yourself
 Do-It-For-Me
 Professional customers
• Store Productivity
Improvement (SPI)
• Concern for Environment
• “Recession proof”
• No single supplier
• Management and employee
relations
• Brand Awareness
V. ANALYSIS OF STRATEGIC FACTORS
BENJAMIN HOWARD
A. Situational Analysis (SWOT)
2. Weaknesses
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Carpet Installation
Didn’t inspire customer service
Negative comparable store sale figure
Product Recalls
3. Opportunities
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Introduce new products
Maintain and grow leadership position
Become the Nation’s largest diversified distributor
Become number one in services
Increasing direct-to-consumer channels
New operational Initiatives
Tremendous potential for future growth
International Expansion
V. ANALYSIS OF STRATEGIC FACTORS
BENJAMIN HOWARD
A. Situational Awareness (SWOT)
4. Threats
• Reorganization Initiatives
• Increase demand for power tools
• Growth in online purchasing
B. Review of Current Mission and Objectives
Mission Statement
• To provide the best customer experience in home improvement retail, the
best place to work for our associates and the best place to invest
Objective
• Cannibalize
• Attend to customer
EXHIBIT #4
BENJAMIN HOWARD
Liquidity Ratio
Current
(Current Assets/Current Liabilities)
2005
1.3
2006
1.18
Quick
(current Assets-inventory/current liabilities)
0.401
0.306
Leverage Ratio
Debt to Total Assets
(Total Debt/Total Assets)
Debt To Equity
(Total Debt/Total Assets)
Activity Ratios
Inventory Turnover-sales
(Net Sales/Inventory)
Average collection (days)
(Inventory/COGS divided by 365)
Fixed Asset Turnover
(Sales/Fixed Asset)
Total Asset Turnover
(sales/total asset)
Profitability Ratios
Gross Profit Margin
(Sales-COGS/Net Sales)
Net Operating Margin
(Net Profit After taxes/Net Sales)
Profit Margin on Sales
1-(COGS/Sales)
6.00%
1%
1.37%
8.08%
6.40%
75.7
76.8
1.87%
1.83%
33.50%
32.80%
10.70%
32.8
Return on Total Assets
(Net Profit After Taxes/Total Assets)
12.00%
13.00%
Return on Equity
(Net Profit After taxes/Shareholder’s equity)
21.00%
20.00%