Home Depot Group 2

Home DepotGroup 2 Dillon Shepley Jayson Brayall Jeff Austin Jeff Taylor Benjamin HowardI. Current situationDillon ShepleyA. Current PerformanceThe 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 worlds largest home improvement retailer and the second largest retailer in the United States behind Wal-Mart. 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 situationDillon ShepleyB. Strategic Posture1. 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 situationDillon ShepleyB. 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 nations 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 creditI. Current situationDillon ShepleyB. 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 situationDillon ShepleyB. Strategic Posture

4. PoliciesMain policies

Improve everything we touch Superb Service Be a good corporate citizen Behave Ethically Act with integrityPrior 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. After Bob Nadelli Centralized management Organize the company Emphasis on military efficiency Hire veterans Disciplined manager corpsII. Strategic ManagersJayson BrayallBoard of Directors

Robert NardelliJohn L. ClendeninGregory D. BrennemanClaudio X. GonzalezDavid H. BatchelderKenneth G. LangoneAngelo R. MoziloThomas J. RidgeLaban P. Jackson, Jr.Lawrence R. JohnstonHelen P. Johnson LeipoldBonnie G. HillMilledge A. Hart

II. Strategic ManagersJayson BrayallBoard of Directors (continued)

Majority of directors on the boardNardelli taking advantage of Home Depots 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 ManagersJayson BrayallB. 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 managements has established a strategic approach to corporate management. Nardelli was empowered to bring on like minded upper level managers to match his vision. Home Depots 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 ManagersJayson BrayallB. 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. Tome Annette M. Verschuren

II. Strategic ManagersJayson BrayallB. 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 publishedExhibit #5Jayson BrayallExhibit #5AFY Ends each January(amounts in $M) 200720062005CASH FLOWS FROM OPERATING ACTIVITIES:Net Earnings 5,7615,8385,001Reconciliation of Net Earnings to Net Cash Provided by Op Activities:Depreciation and Amortization 1,8861,5791,319Impairment Related to Disposition of EXPO Real Estate 0780Stock-Based Compensation Expense 297175125Changes in Assets and Liabilities, net of the effects of acquisitions:Decrease (Increase) in Receivables, net 96(358)(266)Increase in Merchandise Inventories (563)(971)(849)(Increase) Decrease in Other Current Assets (225)1629Increase in Accounts Payable and Accrued Liabilities 531148645(Decrease) Increase in Deferred Revenue (123)209263(Decrease) Increase in Income Taxes Payable (172)1752Increase (Decrease) in Deferred Income Taxes 46(609)319(Decrease) Increase in Other Long-Term Liabilities (51)151119Net Cash Provided by Operating Activities 7,6616,6206,632III. External EnvironmentJeff AustinNatural 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 Katrinas devastation shows how the natural environment could affect Home Depot business and its 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 EnvironmentJeff AustinSocietal 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 EnvironmentJeff AustinSocietal 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 EnvironmentJeff AustinSocietal Environment

d) Socio Cultural

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 havent left North America. These factors have not been tested elsewhere.

III. External EnvironmentJeff AustinTask Environment

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 MediumExhibit #1Jeff AustinD. Summary of External FactorsExternal FactorsWeightRatingWeighted ScoreCommentsOpportunitiesRecord-level home sales0.240.8Addition of UNIX0.052.80.14Employee training0.13.60.36Katrina relief0.153.20.48Expansion across borders0.12.50.25ThreatsSelf-checkout kiosk0.130.3Employee compensation0.154.50.675Change in seasonal sales0.052.80.14Informality among employees`0.12.50.25Totals13.395IV. Internal Environment: Strengths and weaknessesJeff TaylorCorporate 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 weaknessesJeff TaylorCorporate 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 weaknessesJeff TaylorCorporate 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 weaknessesJeff TaylorCorporate 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 weaknessesJeff TaylorCorporate 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 weaknessesJeff TaylorCorporate 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 # 2Jeff TaylorEXHIBIT 2Internal FactorsWeightRatingWeighted ScoreCommentsStrengthsSkilled, happy employees0.154.000.60Want to helpInvolved senior management0.103.000.30ImportantProduct selection0.204.500.90Wide varietyService options0.153.500.53DIY, DIFMGood advertising0.153.400.51Widely viewedWeaknessesNew CEO management method0.103.500.35Original employees unhappyEmployee Retention0.052.000.10High turnover rateOverpaid CEO (public issue)0.103.000.30Public is unhappy with thisTotal Scores1.003.59V. Analysis of strategic factors Benjamin HowardSituational 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 AwarenessV. Analysis of strategic factors Benjamin HowardSituational Analysis (SWOT)2. Weaknesses

Carpet Installation Didnt inspire customer service Negative comparable store sale figure Product Recalls

3. Opportunities Introduce new products Maintain and grow leadership position Become the Nations largest diversified distributor Become number one in services Increasing direct-to-consumer channels New operational Initiatives Tremendous potential for future growth International ExpansionV. Analysis of strategic factors Benjamin HowardA. Situational Awareness (SWOT)

4. Threats

Reorganization Initiatives Increase demand for power tools Growth in online purchasing

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 customerExhibit #4 Benjamin HowardLiquidity Ratio20052006Current1.31.18(Current Assets/Current Liabilities)Quick0.4010.306(current Assets-inventory/current liabilities)Leverage RatioDebt to Total Assets6.00%(Total Debt/Total Assets)Debt To Equity1%1.37%(Total Debt/Total Assets)Activity RatiosInventory Turnover-sales8.08%6.40%(Net Sales/Inventory)Average collection (days)75.776.8(Inventory/COGS divided by 365)Fixed Asset Turnover(Sales/Fixed Asset)Total Asset Turnover1.87%1.83%(sales/total asset)Profitability RatiosGross Profit Margin33.50%32.80%(Sales-COGS/Net Sales)Net Operating Margin10.70%(Net Profit After taxes/Net Sales)Profit Margin on Sales32.81-(COGS/Sales)Return on Total Assets12.00%13.00%(Net Profit After Taxes/Total Assets)Return on Equity21.00%20.00%(Net Profit After taxes/Shareholders equity)