Assignment Help on Home Depot
Home Depot is one of the most successful business stories of the past quarter century. In a matter of only 22 years after it was formed, the company had more than 1100 full ware house stores; and reached the $40 Billion revenue mark faster than any other retailer in history. The company pioneers in offering Do It Yourself (DIY) home improvement and construction products and services. The success of the company can be attributed to several distinctive characteristics among which the layout of the stores coupled with extra ordinary autonomy for the store manager aimed to react to local market conditions are predominant (Charan, 2006).
Background and Historical Developments
Home Depot has successfully seen a transition from a fully decentralized management at retail level to centralized practices. The decentralized corporate culture prevailed at Home Depot since its inception and was marked by an entrepreneurial high spiritedness, willingness to take risk with a passionate motive to serve customers, colleagues and the company at large. However, as the company grew larger in size, this decentralized approach made the company less flexible. Practices, policies and activities that were being performed at one store were difficult to replicate on the other and was contingent on the discretion of the store managers. Further, with the exponential growth of the company in size, it became increasingly difficult to find talented store managers that could run and entire store on their directives (Charan, 2006). Consequently, with individual store running as a separate entity, the company could not benefit from economies of scale. According to Charan (2006), Nardelli completely changed the social architecture of the company i.e. the synergies that people create by working collectively to support the overall company’s business model.
Decentralized Vs Centralized Retailing Practices:
Decentralization in a retail environment refers to the autonomy that can be given to an individual store management staff to perform various activities including use of promotional tool, inventory and order management, customer service standards along with management of store staff. In a centralized control environment, most of these activities are performed by the headquarters (Chang and Harrington, 2000).
Historically different organizations in retailing industry have used different policies to address the issue of centralization in individual stores. There are a number of factors that affect the success of a retail chain other than just centralization policies. Two successful retailers have contrasting practices as argued by Collins and Porras (1994, p36-37);
“[Sam] Walton [founder of Wal-Mart] valued change, experimentation, and constant improvement. But he didn’t just preach these values, he instituted concrete organizational mechanisms to stimulate change and improvement. Using a concept called “A Store Within a Store”, Walton gave department managers the authority and freedom to run each department as if it were their own business. Whereas Walton concentrated on creating an organization that would evolve and change on its own, Ames leaders dictated all changes from above and detailed in a book the precise steps a store manager should take, leaving no room for initiative”
Home Depot: Innovation for Success:
Retailers such as Home Depot are characterized by their operating practices such known as routines. Home Depot has been facing problems in terms of serving customers as employees feel they have to engage in newer routines that were not present before. However, in order to sustain the competitive advantage in in either a decentralized or centralized structure, innovation is the key to success. Also, there should be coherence between expectations of the customers and operating practices (Darrow et al, 1994).
It is evident from the case that success of Home Depot can be attributed to decentralized retail management. This strategy has allowed the company to innovate and thus be extremely profitable. For instance, Home Depot was the first company to popularize Do It Yourself concept. Further Home Depot pioneered in introducing training workshops for its customers to delight them at a next level and build strong relationships. As soon as the customer service level declined, it started to have a negative impact on company’s performance. Centralization also leads company being less innovative.
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