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 / Summer 2004 / Issue 35(originally published by Booz & Company)


HR on Top

Two U.S. retail companies — The Home Depot Inc., in the home-improvement business, and Washington Mutual Inc., in financial services — have HR executives who were handpicked by the CEO for the top human resources job and given responsibilities far outside the traditional boundaries of HR. These executives are involved in all areas of business decision making — whether it is a long-term strategic initiative, such as buying and integrating companies; or changes in the market and brand positioning; or ongoing operational concerns such as managing supplier relationships, communications, and customer service.

“We in HR exist for only one reason: to increase the organization’s capability,” Daryl David, executive vice president of HR at Washington Mutual, told Chief Executive magazine last December. Mr. David, reporting to the chairman and CEO Kerry Killinger, has played a pivotal role in Washington Mutual’s growth by acquisition. Since 2000, the firm has completed seven acquisitions, expanding from a midsized regional financial-services company with 25,000 employees to a national player with more than 50,000 employees as of 2003. Mr. David and his team get involved in due diligence for each acquisition, in post-acquisition integration, and in planning for future organizational changes. In 2000, Linda Clark-Santos, a Ph.D. in educational administration and former senior HR executive at Starbucks, filled Washington Mutual’s newly created position of senior vice president for talent recruitment and organizational capability, reporting to Mr. David.

Dennis N. Donovan, executive vice president of human resources at Home Depot, was one of the first senior executives hired by Robert Nardelli when he became CEO in December 2000. Mr. Nardelli recruited his former General Electric colleague because he knew Mr. Donovan could immediately dive into leading major strategy and change initiatives and tackle the challenges associated with rapid growth.

Mr. Nardelli set a corporate goal of growing the business from $48 billion to $100 billion. A key component in achieving that goal was opening new stores — at an average rate of 200 per year (or one every 43 hours). In 2002 alone, the company hired more than 180,000 people, and expanded in Canada and Mexico. Within a few months of his arrival, Mr. Donovan and his HR team came up with 300 different projects to initiate over a three-year period, many of them aimed at strengthening management and leadership skills in order to increase operating efficiency and customer service at the store level. For example, using information collected from a survey of 276,000 Home Depot employees, Mr. Donovan was able to link the turnover of store managers directly to store financial performance, and identify the store manager job as a pivotal position in achieving corporate goals. He also showed how rapid growth had drained Home Depot’s store management pipeline and created service problems in some stores.

In response, the HR department introduced a learning forum for store and district managers, and within five months put 1,800 managers, many of whom were learning to develop strategy and create operating plans for the first time, through a week of intensive leadership training. Now there is an HR manager in every Home Depot store who works with store managers to facilitate staff education using e-learning kiosks. Home Depot also created the Leadership Institute with programs for developing functional staff and high-potential store managers.

High-Powered HR
The reinvention of the HR department is inevitable; the only question is how fast it will happen.

Fortune 100 companies are currently leading in outsourcing HR administration because they often have an IT infrastructure to support such an action. Small and medium-sized companies potentially have plenty to gain from HR outsourcing as well, so there is every reason to believe that more and more vendors will target them.

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