Management Analysis of Home Depot

Home Depot, Inc. is an Atlanta, Georgia-based retailer of home improvement products that was established in June 1978 by Arthur Blank, Bernard Marcus, Farrah Pat, and Kenneth Langone. The company offers a variety of services and products, including garden and lawn supplies, renovation products for homes, and construction materials. It operates full-service stores that sell its items as well as Home Depot locations that offer storage in a warehouse. As of January 2017, the company had 2,278 locations spread over the United States, including Puerto Rico, the US territories of Guam and the Virgin Islands, Mexico, and Canada. The firm provides national installation services and contractors for goods that range from roofs to floors, water heaters to windows, vinyl siding and kitchen cabinets. The company’s retail stores also provide professional remodel and repair contractors, support and special services on the job site. The firm serves general contractors, expert remodelers, tradespeople, and small business owners. The company’s management has been responsible for the success of the enterprise. The five forces analysis shows that the company should ensure it gains a competitive edge against the company to excel in its industry. By venturing on online platforms, the company has attained wider choices that have assisted it to grow in its industry. It is clear that the transformational leadership provided by Craig Menear who has a lot of experience alongside his team has ensured that the firm gains a competitive edge in the industry.

Company Profile

Industry and Competitor Analysis

Home Depot rivals numerous other companies in the home-enhancement retail market. Lowe is the company’s major competitor in the industry. Furthermore, the low switching expenses make it possible for customers to shift from Home Depot to other companies, which sell identical home enhancement products (Ton & Ross, 2008). In addition, the moderate exit obstaclessuggest that rivals have a low likelihood of exiting the market and they would rather persist their competition against Home Depot (Soni, 2016). Grounded on the Five Forces analysis, the company must ensure competitive advantage to wade off strong competition in the industry.

Ease of substitution and product differentiation.Lowe is a major competitor in the home enhancement sector where most goods particularly construction materials are undifferentiated and largely standardized. Thus, clients would find it comparatively easier to change suppliers with no serious effect on either the quality of merchandise purchased or their pockets.

The risk of new entrants. The risk of new entrants to the sector is quite high especially during an upswing in the housing market. Nonetheless, new entrants would not find it an easy going to create a presence and reputation in the market on a similar scale as Lowe and Home Depot(Soni, 2016). Moreover, an upswing would incline to be beneficial for big companies like Home Depot (HD) and Lowe than for the fringe actors.

The degree of competition in the industry. The home-enhancement retail sector is highly fragmented in services and products. The level of competition is great but HD and Lowe’s rank number one and two respectively.

Buyer’s bargaining power. Because of the great competition and a product, which is greatly undifferentiated, the customers have a high bargaining power. Accordingly, the completion of the retailers is often based on service differentiation. Bothe companies use a sophisticated customer service philosophy and tech improvements to lure and maintain customers. Furthermore, the two companies have the advantage of being a one-stop shop, which most other actors do not offer. Their stores are also the biggest thus ensuring that customers can anticipate some level of services on a national level.

Supplier’s bargaining power. HD and Lowe’s are both large customers for different suppliers in the sector. Because of their large sizes, the two retailers enjoy substantial purchasing and economies of scale. Their decisions to purchase influence some large firms along the chain of supply and thus the firms possess a moderately great suppliers’ bargaining power (Soni, 2016).

Management Team Analysis

The company’s management team (executives) are responsible for the company’s daily operations. At the helm of the leadership, pyramid is Craig Menear. An Executive President heads the U.S. stores unit while a President is in charge of the other units. Furthermore, every HD store has a hierarchy within its local administrative structure, with employees who report to the store manager who is answerable to the geographic division leader. Menear acts as the chairman, president, and CEO of The HD. Craig has injected his expertise of product, online, supply chain, and marketing experience to his objective during a moment when the retail environment is changing rapidly. As the manager of the stores and their subsidiaries, Menear spends most of his days with customers and associates at the firm’s stores, call centers, and centers of distribution. He oversees the values and culture in action as the firm’s competitive advantage.

Ann Marie Campbell is the executive vice president of the American stores. Campbell started her career with the company in 1985 as a South Florida cashier and is presently the U.S. stores’ executive vice president. Under the role, she is in charge of the firm’s three American operating units of about 2,000 American outlets and the volume of the firm’s 400,000 associates (Home Depot, 2016). In her work at the company, she has worked in different positions such as district manager, store manager, and regional vice president. Furthermore, she has served as the vice president of activities, the vice president of special orders and merchandising, vice president of vendor services and more currently the preside of HD’s Southern Division.

Matt Carey is the companies Chief Information Officer and executive vice president.Matt oversees all elements of software development and the firm’s IT framework comprising communication networks, most supply chain centers of distribution, and retail systems all over the firm’s more than 2,000 stores and outlet support centers (Greenspan, R., (2017). Furthermore, Matt is accountable for the company’s IT strategy, comprising the establishment and implementation of technologies used online, in the supply chains and the stores.

Ted Decker is the merchandising executive vice president (Home Depot, 2016). He handles all aspects of marketing, merchandising, pricing, and store environment. Most importantly, he is in charge of planning and pricing at the home outlets and those outside the region.

SWOT Analysis

Home Depot is recognizedfor revolutionizing the American home enhancement industry. Thus, there are strengths the company’s management exploits to stay ahead of the competition with opportunities for development. Nonetheless, there are also weaknesses and threats that affect the company. In this light, HD’s business is examined using SWOT analysis.

Strengths. Home Depot’s main strength is its leadership. Despite greatly depending on macroeconomic elements for success, the retailer managed to endure in the recession. The company’s focus on productivity and cost savings strategies under the past leadership of CEO Blake Frank was instrumental in ensuring that the company survived the global financial crisis. Moreover, current CEO Manear’s experience at the firm has maintained the execution of remarkable leadership. Another major strength of HD is productivity; an aspect that contrasts Lowe’s - its main arch rival. Moreover, the company has maintained its focus productivityboth its stores and other areas as opposed to establishing new income streams (Traffic Team Contributor, 2015). The productivity is evident in their operations concerning the in-store mobile innovation and same-day delivery. Most significantly, HD has mastered its productivity improvement from their progressive modernization of their supply chain compared to Lowe’s.

Weaknesses. A major drawback for HD is its high reliance on macroeconomic elements. Having more than 90 % of stores situated in America, the success of the firm is greatly correlated with U.S.’s economic performance. Thus, any discrepancy in the macroeconomic environment could injure the retailer’s profit prospects. High levels of debts is a major drawback for the company. The firm had longer term debts at 16.9 billion USD representing a 15 % rise in 2014. The debts are higher compared to Lowe’s which was 10.1 billion. The high levels of debt alongside repayments of future interests could affect the company’s profitability and cash flows constraining their capacity to expand.

Opportunities. Presently, HD has a footing in Mexico, Canada, and across the U.S. Since the reigns of Frank Blake’s, the company has laid focus on increasing productivity, and this might make sense for it to expand its geographical footmark in an attempt to establish new revenue sources (Treffis Team Contributor, 2015). Apart from global expansion, the company has the potential of tapping the online shoppers by establishing its online interphase and deliverable capacities to increase incomes from this platform.

Threats. As mentioned before, HD’s prospects are dependent on the U.S’s economy performance. Some shorter term elements could affect growth potential that the company expects to enjoy. Moreover, the hike in interest rates could decrease activity levels in housing sector by raising rates on mortgages. Apart from macroeconomics, weather-related factors could constrict the growth potential for the company. Customers often incline to postpone home enhancements during bad weather that is explained why the first quarter tends to be the weakest period for HD. Apart from stiff competition from Lowe’s, there is still competition waged by other actors who comprise Wal-Mart, Amazon, and Costco.

Execution of Management Functions

Planning

Short term and Longer-term objectives. Home Depot has no clearly defined short-term goals, but from its mission, it can be construed that the firm’s short-term goals are to provide the highest service levels and the widest assortment of products and at the most competitive costs (Spekman& Davis, 2016). Therefore, the short-term goals comprise these three elements.

The company’s longer-term objectives is to improve sales and shareholder value in the subsequent few years. The company is taking longer-term objectives in areas of production authority, customer service, efficiency and productivity energized by a disciplined allocation of capital. The firm’s new longer term 2018 financial objectives comprise total sales of about 101 billion USD, an operating margin of about 14.5 % and return on invested capital of about 35 % (Spekman & Davis, 2016). Another long-term goal is to acquire Hughes Supply to improve to its position in waterworks, plumbing and non-industry facility maintenance.

How home depot has shared its plans.The firm has used different tools to share its plan throughout the firm. These include data templates that detail data organization forms for quarterly meetings of business reviewed; disciplined talent reviews (these are conducted consistently and regularly, and they emphasize the need to stick to objectives), employee task forces (comprising individuals from all company levels who elicit their input to bring change), and an array of leadership development programs (Charan, 2006).These include the store leadership program, future leaders program, and merchandising program.

The difficulty of achieving these goals. The store has not managed to increase operations by building new stores in America. It is also difficult for the company to attain the longer term plan of expanding to China because of having the wrong regional heads and challenges of adopting China’s big box model system of distribution as well as a cultural mismatch (DuBois, 2012). Moreover, there are problems of establishing and increasing product channel relationships.

Organizing

Home Depot’s organizational structure. The organization structure of a firm refers to the system or arrangement, which defines the relationships of the various sections of the organization(Markides& Williamson, 2006). In Home Depot’s case, this corporate structure determines the pattern of activities that the company uses to connect with the target customers in the home-improvement retail market (Greenspan, 2017). Concerning the features of HD’s organization structure, the company has a divisional organizational structure that has some attributes of the functional structure of organizations with characteristics comprising:

Geographic divisions. Geographical units are a remarkable attribute of HD’s organizational structure. The firm has one geographic unit for the U.S., another for Mexico and another for Canada (Greenspan, 2017).An Executive Vice President heads the U.S. stores division, and a President leads each of the other units. There are more divisions in Home Depot’s organization structure. For example, the American Stores division comprises the Sothern, Northern and Western divisions.

Global functional groups. The firm’s organizational structure further comprises functional groups. For instance, a firm has an international merchandising group, a global HRM group, among others. The Merchandising group comprises the Hardlines, Décor, and the Construction Materials Merchandising groups. With this organizational feature, Home Depot’s addresses particular functional needs of the business.

Global hierarchy. The hierarchy feature exists at the store and global levels and is less prominent in the company’s organizational structure. Internationally, the hierarchy of the company’s organizational structure is seen in the authority and command lines. For instance, the heads of the Southern, Western, and Northern units report to the US division stores’ Executive Vice-president who is answerable to the CEO (Greenspan, 2017). Moreover, every of the company’s store has a hierarchy in its domestic organizational structure in which employees reportto the store manager, who is also answerable to the head of the geographic division.

How the Structure Supports the Firm’s Mission

Home Depot’s mission is to provide the highest service levels, the broad assortment of products and the most reasonable prices. The organizational structure supports the mission of providing services of the highest quality because it enables the firm to sustain a centralized corporate mechanism. The former CEO Nardelli strengthened this centralization. Another merit of the company’s organizational model is that it motivates focus on functions and processes through the group’s functional groups thus ensuring high-quality services. The functional groups also enable the company to create a wide assortment of goods and services by supporting some level of customization to regional market settings and customer preferences (Gao, 2013). Despite having little support for flexibility and autonomy, HD’s organizational structure enables the firm to set reasonable prices to its consumers.

Contributions of the Divisions to Profitability

The manager of each division acts independently and is responsible for the activities and processes at his location. The managers are responsible for business operations; they create a new business unit whenever the operations at their divisions become very large thus spanning new operations. They heads of the divisions do this in an attempt to protect the company’s agility.

Leading

Home Depot’s style of leadership. Home Depot enjoys success because of transformational leadership. According to Epstein, Buhovac, and Yuthas, (2010), transformational leaders are forces behind motivating greatness and setting their organization’s courses by rewriting the guidelines for the operations to get a competitive advantage. The former CEO underpins the organization’s attributes of transformational leadership. The present CEO Menear has maintained this style of leadership. The executive has been handed the role of maintaining sales as the firm shifts from establishing new stores in America to investing online.

The fit of the leadership style with what the company sells. Transformational leadership has been critical to improving efficiency at the company. Home Depot’s leadership has made various transformations to ensure it addresses the needs of the home-improvement retail sector. As such, the leaders have rewritten the guidelines that concern the retail industry such as effectively managing the supply chain, product development to managing master data seamlessly across different systems. The transformational leaders of the company also carefully established a comprehensive team by combining different people from the business, and IT functions to fill such gaps. All these aspects have assisted the firm to enhance efficiency, decrease time- to-market and ensure lower costsof services and products in the home-enhancement sector.

Controlling

Activities Home Depot controls. Home Depot endeavors to be the retailer, employer, retailer, neighbor, and investment choice in the home enhancement sector. The company controls its activities through corporate governance, which underpins the culture of the company and is grounded on the leaders’ daily dedication to recognizing the ethical obligation towards the suppliers, communities, shareholders, employees (associates), and customers (Home Depot, 2016). The culture of the company is such that it understands its obligation to act ethically, to comprehend the effect the company has on the communities and consider in a fair manner the broad constituencies’ interests. Alongside this, is the longstanding commitment of the company to robust practices of corporate governance.

How the company has shared this information. The Home Depothas shared the information of corporate governance on the company’s website, which it periodically updates with changes to the laws and legislations. The Company updates this site periodically as laws and regulations change with time (Home Depot, 2016).Beginning May 18, 2016, HD revised its Business Ethics and Conduct code that was updated to improve the clarity of controls and area of conflict.

How the controls feed into the function of planning. The managers of the Home Depot consistently plan for the future, and after implementing these plans, the managers explore whether they attained their goals. Thus, the managers use controls to ensure that the organization practices align with objectives. Thus, the processes of planning entail goal setting and communicating these goals to all employees. The company then applies the control function as the process of assessing whether the organization’s strategies were executedeffectively. Clearly, the organization uses its controls to guard against the undesirable action and to encourage individuals to work towards the organizational plans.

Decision of Whether to Invest My Retirement Savings in Home Depot

HD’s business heavily relies on the steadiness of the housing market. The company is still accumulating a bigger portion of the increasing market. Over the last decade, the company’s net revenue has doubled compared to a 55 per cent increase for Lowe’s. Home Depot does not just rely on new houses; homes need constant improvements on the current properties. Moreover, with a rising housing and house prices turnover, it is possible thathouseholds will use more money to improve homes. I think it would be prudent to invest my retirement savings in Home Depot because hosing remains an important aspect of American families’ net worth and even if a downturn occurs, the Federal Reserve will instruct cut interests rates or supply the market with liquidity (Kalogeropoulos, 2016). Given the good management of Home Depot, it would be a good reason to invest in the company. Home Depot regularly increases its dividend for the previous seven years. Just this year, the company’s management increased its payout ratio to 55 % and a 20 per cent increase early this year. Not only that, but HD management upped its target payout ratio to 55% and announced a 20% dividend increase back in February. This proves that the firm is dedicated to giving the best yield and it can bring returns to shareholders.

In addition, the company’s decisions on capital allocation are rare for the sector as well. In the retail sector, just a countable number of other firms are capable of passing on over 50 percent of their revenue to investors. In dissimilarity, Lowe’s pays just 30 percent to its investors. HD is a company on a rising trend. The company’s stellar earnings report released in February certainly painted an optimistic future ahead. The company is anticipating sales and profits throughout the year. Therefore, investing in the company will generate desirable results for investors.

In sum, Home Depot, Inc. deals with construction materials and home improvement products in America, Canada, and Mexico. Grounded on the Five Forces analysis the firm’s major competitor is Lowe’s. Thus, the company should use its competitive advantage to fight the strong competition in the industry. From this assessment, it is clear that executives’ management is responsible for the company’s daily operations with Craig Menear at the top as the Executive president and CEO. The main strength of Home Depot is its leadership and focus on productivity and cost savings. However, the major weakness is an overdependence on the macroeconomic environment. Moreover, poor weather could hamper the growth potential for the company. Overall, the company undertakes various management functions such as planning, controlling, organizing, and leading. Under planning, the organization has set up short term measures to propel the company to the desired level. With the firm’s divisional organizational structure alongside the transformational leadership, the company is poised to become profitable in the imminent future. Because of Home Depot’s good management, it is highly likely that it would be a good reason to invest in the company. Ultimately, the company should exploit its competitive advantage to remain profitable in its sector.

References

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