Home Depot’s Changes and Development in Organizational Structure

Group Case Study:

Home Depot’s Changes and Development in Organizational Structure

University of Kansas

Group Case Study:

Home Depot’s Changes and Development in Organizational Structure

Home Depot originated out of Atlanta and began to expand at a breakneck pace. To keep up with the complexity of such a large corporation, they decentralized the supply chain and gave regional managers authority on what items to stock. This decision gave rise to a competitor, Lowe's, who saw a weakness in Home Depot's structure. With Home Depot’s stock collapsing, they brought in Bob Nardelli to remedy the situation.

Nardelli Changed Structure and Its Impact on Management

        Bob Nardelli utilized standardization to change the way Home Depot’s organizational structure operated. Prior military experience helped him create a streamlined approach that gave Home Depot the fresh start to compete with other home improvement businesses. Nardelli moved Home Depot’s organizational structure from a decentralized to a centralized system.

This was done by repeatedly removing the distribution of authority across the company and returning it to the corporate headquarters. Most notably, however, he removed the store manager’s control of what could be stocked in the stores. This greatly reduced the complexity of Home Depot’s supply chain and cost—thereby decreasing variety but increasing efficiency and quality. By removing the manager’s responsibility to find what products should be sold at their store, they could start to focus on their costs and sales.

Lower costs meant the company attracted more customers; it also meant Home Depot could maintain its expenses and revenues—and consequently raised its stock value again. A new IT system was installed so managers could see the performance of all their individual stores in real time (George & Jones, p. 498, 2012). While the case, itself, does not go much further into any new tasks of managers, based on personal experiences in the retail world, it would be feasible to assume that they would focus more of their attention on employees and customers, which may have impacted internal and external motivation.

This compare and contrast method was used by some professors during our undergraduate careers. For instance, some teachers posted students’ scores on a roster—arranged by ID number for anonymity. Being able to see every student’s performance on an exam allowed for two things: where you stood in relation to your peers, and how much further you were from the top. Seeing this led to increased motivation, which ultimately led to an A for the semester. Nardelli employed a similar tactic that may have motivated employees to keep excelling.

Contingencies That Led to Change and Their Implications

        “Home Depot’s weakness was its poor-quality customer service and poor store layout” (George & Jones, p. 498, 2012), prior to Nardelli’s arrival. These changes were caused by the rise of major competitor Lowe’s, as it began to cut into Home Depot's sales. Lowes saw Home Depot’s lack of customer service, poor layout and complicated supply chain as weaknesses it could exploit. “ Lowe’s managers designed stores so they were easy for ordinary “unskilled” homeowners to shop in, they made sure lots of help was available, and they decided to stock a standardized range of products in all their stores to reduce costs.” (George & Jones, p. 498, 2012). Thus, Lowe’s adapted to the common homeowner, which boosted sales and caused Home Depot’s stock to collapse.