Many of Home Depot’s most important strategic change initiatives have come from and been led by Mr. Donovan. When he became CHRO in April 2001, he swiftly beefed up resources for hiring and developing workers. To accomplish that, he declared that every store would have its own human resources manager. It was no small task, since the company at that time already had about 1,300 stores.
Even more daunting, if Mr. Nardelli and Mr. Donovan wanted to accelerate growth, they couldn’t afford to ignore the retailer’s worst process inefficiencies, which had to be tackled before they could build widespread support for their leadership. This was not going to be easy, because change needed to hit the heart of Home Depot’s cowboy culture: decentralization.
Mr. Nardelli knew that Home Depot employees’ penchant for doing their own thing was costly. The most glaring inefficiency was the use of nine separate regional purchasing departments. Not only were the departments out of sync; they often bid against each other for deals with suppliers. Mr. Nardelli brought them together in a single unit that could take advantage of Home Depot’s scale to get the best prices, just as Wal-Mart had done in general retail.
The push for recentralization happened fast. The new CEO made it clear that voice mails from headquarters were to be returned immediately. Nonconformism went out the window; standardization became the law. Pre-Nardelli, 157 employee performance evaluation forms had been in use; within months of Mr. Donovan’s arrival, he had cut that down to just two, one for managers and one for other workers. Managers are rated in 360-degree reviews with straightforward points for specific behaviors, such as “Displays Character” and “Drives Change.”
Standardized employee evaluations made it easier to figure out who was performing well and who was not. As soon as the evaluations came in, Mr. Donovan passed them on to Mr. Nardelli. After reviewing them together, they soon realized that many store managers weren’t up to the job. Mr. Donovan recommended the company make another painful decision: to slow down the pace of store openings and promotions until Home Depot could guarantee a better quality of management. The decision to place a human resources manager in every store in the country tested Mr. Donovan’s organizational skills; the proposal promised to be a logistics nightmare. How could the company hire more than 1,000 competent people in such a short time?
The answer, for Mr. Donovan, came down to numbers. Within 12 weeks of initiating the new policy, the company collected 37,000 applications for human resources manager jobs. Mr. Donovan’s staff interviewed 3,000 applicants; the company offered jobs to 1,300. The new managers all started the following week.
For a man of action, Mr. Nardelli showed restraint in those first months as the new CEO, listening and then talking. “You have to get them to a level of acceptance, and then they say ‘Give me more!’ ” he explains. Mr. Nardelli also spent his first months walking through stores and meeting with managers from all over the country. “Bob was very visible when he got here,” says Mr. Taylor. “When you called, you could get him on the phone pretty easily. He was accessible, and that made a difference.”
The share price of the store chain hit a peak of nearly $70 during the late 1990s bull run, just before Mr. Nardelli took the reins. During Mr. Nardelli’s first two years as CEO, the stock market began to sense what Home Depot’s executives already knew: Despite stellar growth, the company suffered from inefficiencies that made it competitively vulnerable. For the first time in the company’s history, Home Depot’s same-store sales began to shrink. Analysts and the media wondered aloud if Bob Nardelli was the best person for the job. By the beginning of 2003, the company’s stock price had dropped to just $23 per share.