Running head: STRATEGIC DIRECTION—HOME DEPOT

Strategic Direction—Home Depot
Keller Graduate School of Management
J. Lambrou, Professor

Strategic Direction Introduction

What is Strategic Direction? This means taking your company in a direction related to what’s happening in the dynamic environment of what the business provides (be it in a services, manufacturing, technological, or financial area). (Olsen, 2007) Therefore, the strategy and direction the company take are defined by what established and unique value propositions the company has when compared to competitors; operations executed to provide different and tailored value to customers; clearly identifies any tradeoffs and clarifies what not to do; focuses on activities that fit together and reinforce each other; and is continually driven for improvement within the organization and while moving it toward its defined vision. I use The Home Depot (Home Depot here-out) for this paper as I have a part-time job with them. Strategy

Home Depot’s simple and straightforward strategy is to ensure it diversifies its operations by having several businesses competing in the different product markets of home improvement. (Home Depot, 2008)
The Home Depot has positioned itself within the industry based on a strategy of cost leadership. This operating strategy allows the company to earn above-average profitability by dictating prices from suppliers lowering input costs and minimizing distribution transactions eliminating the “middleman.” Home Depot developed a tight cost control system through quality assurance programs which monitor vendor compliance contained by the company’s requirements. Home Depot must position itself for future business by generating distinctive store formats to accommodate a diversified customer base allowing the company to compete in niche markets, such as lawn and garden and the private contracting for home installation of products they sell (flooring, siding, roofing, and the like). Home Depot’s core competencies are centered upon the timely execution and delivery of products to its stores to consistently provide an inventory of competitively priced premium products.
In 2011, Home Depot maintained its long-term objectives for continuous growth and expansion. Current plans are to open another 100 Home Depot stores in the United States by 2014. In addition, Home Depot will increase investments in technology and modernization, as well as sustain its control through its vertical growth strategy in its value chain.
With a strategy to enhance its core retail network through innovative and unique merchandise, Home Depot is committed to the changing needs of the home improvement market. Home Depot is looking to organize and establish dominance globally. To achieve this goal, the corporation will begin to locate several stores in one market: China. The reasoning behind this is to establish multiple units in a single marketplace and to create dominance. (Hunger, 2003)
Central to the company’s strategy is placing the customer first. As the rules have changed in a fundamental way and are continuing to be modified, so, too, must Home Depot enhance its customer focus which calls for a reversal of industry thinking. This new style of thought leads to a new type of hard work—not only in understanding the organization, but also in understanding the customer and in understanding exactly how profit happens. By placing the customer at the fore-front of the process and ensuring all other actions follow, the company can reap incredible rewards (profitability and staying ahead of the competition). (Kurtzman, 2004) There are several ways in order to achieve a solid customer-focused strategy, and they include: employee training plus making time for it, strategic partnering, and corporate led support. Therefore, through the use of new information technologies, employees will be enabled to take on-line course to enhance their already good customer service which helps drive profits and assure return business. Likewise, strategic partnering serves the company well by providing products and product information Home Depot’s customers need to complete their home improvement projects. Home Depot’s strategic partners (Vigoro, Scott’s, Owens-Corning, and the like) all provide outstanding products and services to both our customers and employees. Employees gain useful insight through product demonstrations which they apply to customers through in-store sales. Lastly, no customer service program succeeds without top-management led initiatives. Leadership by example, up and down the chain of command, will directly prove to all employees putting customers first is the first priority. (Harvard Business School Press, 2006) This strategy is reflected in the company’s Core Competencies. Core Competencies

Home Depot’s core competencies are in using its breadth and far reaching scope to achieve economy of scale dominance in purchasing quality products and offering them to their customers at competitive prices. (Home Depot, 2012) Home Depot’s competencies in its retail and commercial divisions are largely the same: provide exceptional customer service while using technology to enhance design and distribution. Home Depot’s core competencies help provide potential access to a wide variety of markets, while making a contribution to the customer benefits of the product. Home Depot’s core competencies shape the products and services offered by asking why their customers pick them over the competition. The answer is price, availability and location. Therefore, to recap, Home Depot’s core competencies revolve around: * Excellent Customer Service * Skilled Labor * Tremendous Buying Power * Quality Products * High Inventory Turns * Adaptability
Home Depot is big on customer service and providing expertise to the do it yourself and build it yourself consumer. To achieve this, only the most qualified and knowledgeable associates are hired to provide the best customer service possible. Also, in order to attract the largest consumer outreach possible, the company provides only the best quality products with everyday lowest prices because of direct purchasing from suppliers. It is the combination of having very competitive costs, outstanding services, innovative products and the best responsiveness—the whole package. The responsiveness of their customer service team is what differentiates Home Depot from its competitors. In order to do this, Home Depot believes that the people are the most important part of the equation in creating value for the customers, suppliers and employees. By employing the best, Home Depot makes it clear that running the business is a team effort and every employee should feel empowered to put the customer’s needs at the forefront of everything they do. (Home Depot, 2007)
A trend that will have low occurrence and probability is competition from a Non-Domestic Competitor. Americans appreciate domestic companies and Home Depot is a proud American symbol that dominates the industry. It is very unlikely Home Depot will fall victim to a foreign competitor in the near to distant future. Home Depot has to worry about domestic threats but with little worry. Home Depot has captured a majority of the market share and it is also unlikely that any domestic company will catch the company.
Home Depot is also known for creating opportunity through community awareness and charitable contributions. By being involved in the community, Home Depot is able to present a good image of community responsibility. Using a “customer-back” initiative in decision-making, Home Depot is dedicated to building relationships with the customers, whether they are the do-it-yourselfers, the professional, or one of many emerging customer segments. (Ferrell, 2000) Home Depot’s pledge is to provide service and products “second to none.” Over the years, Home Depot will excel in adaptability and willingness to try new tactics, such as operating stores 24 hours a day, in order to meet local market demands. Industry Dynamics

SWOT Analysis/Strengths
Home Depot possesses much competitive strength making them a very difficult company to compete against. Home Depot’s strengths include its: * Business model * Well known brand name * Extensive product offerings * Ability to grow
Home Depot’s business model, the first of its kind in the home improvement industry has revolutionized the way customers shop for home improvement products. Their business model is simple: sell home improvement products and services to do it yourself, build it yourself, and professional customers (contractors) in huge spacious warehouses which boast a wide variety of products with sales associates educated and knowledgeable about home improvement. This is all done with low prices as the primary driver.
Home Depot distinguishes itself as the home improvement warehouse with what customers are looking for when it comes to home improvement. Their extensive product lines make Home Depot the one stop shopping in home improvement. Since the beginning, Home Depot has demonstrated its desire to become the largest home improvement retailer in the world.
Weaknesses
Counterbalancing the strengths of Home Depot, it also has a couple of key weaknesses that need to be addressed. Growth has both a blessing and a headache for Home Depot. As this particular industry has expanded aggressively into new markets, operating expenses have arisen in direct proportion with growth in revenue. Currently, Home Depot is not capitalizing on economies of scale in logistics and distribution provided to them by their market saturation strategy.
However, the threat of new entrants is very unlikely. This industry if very mature and whenever a new competitor tries entering the market, Home Depot puts up a store in the vicinity to the new store knowing they will take most of its business. There is no way a new competitor can compete with the big companies of this industry. These companies have already made a name for themselves and customers are going to go there instead of anywhere else. Also, these new companies do not have the capital to compete with Home Depot. Home Depot has been consistently reducing costs, and has helped to sell products at lower costs than its competitors.
This industry has not shown signs of growth with regards to up and coming competitors. No other competitor has the sheer size of Home Depot and this allows the company to sell their goods at lower prices than companies of smaller sizes. Home Depot is also able to sell a more diversified line of products because of their corporate size and resources. Customers know exactly where the nearest Home Depot is and search for their wanted products there instead of going to an Ace Hardware which has a smaller selection. Home Depot does have an advantage over its competitors because of their size. They are able to dedicate more employees and money predicting future environmental trends. Technology Sourcing and Internal Innovation

Home Depot has seen several advancements in technology. One advancement was the introduction of self-checkout registers, which is also a key part of operations. This empowers the customer and gives them a sense of control. Another improvement was the connectivity for new stores. The network development established better customer service by making sure each product was always in stock. Furthermore, Home Depot’s continued focus on their stores demonstrated a strategy for technological improvements beyond self-help kiosks. A satellite based network was deployed to all stores in order to increase network resiliency and connectivity to their data centers. To support their supply chain, significant investment was made to sustain warehouse and transportation management as well. These technological improvements have saved Home Depot profits otherwise lost to poor inventory control and customer dissatisfaction. (Home Depot, 2007)
Moreover, information security management and governance processes must be instituted to protect not only company information related to pricing, inventory, stocking practices, and the like, but also customer information (credit card data, home addresses, phone numbers, and so on). To make this happen, Home Depot developed goals to achieve information security management. Beyond developing standard policy suites, Home Depot ensures all employees are aware of their information security responsibilities. By requiring all employees to participate in information security awareness courses (web-based learning), their responsibilities for protecting the information in their care is reinforced. Additionally, Home Depot established an oversight authority for information security at each of its stores. Designating a person at each store gives that person the authority to authorize new information technology services or transfer management of those services to a department or service provider with the requisite capabilities.
Lastly, all sensitive data is inventoried and purged as needed. By initiating a data inventory process at each store, thus identifying sensitive data, ensures the data is appropriately protected. Sensitive data no longer needed for business or archival purposes will be promptly purged in accordance with corporate archival policy. This includes the newly established payment method using PayPal, a first for a major retailer.
A good example is how the company exploited extended innovation exploring white-space opportunities by recombining its own assets and competencies with those of other businesses. For instance, the company leveraged its competence in branding to establish a line of Home Depot–branded tools for young children. Home Depot is selling these toy tools through a partnership with Toys “R” Us, which contributes competence in marketing to children as well as an enormous distribution channel through its stores. But Home Depot’s innovation extends beyond alliances in the retail industry to include alliances with real-estate developer, an insurance company, and a provider of consumer credit. Home Depot is helping real-estate developers in Southern California to publicize their residential developments. In return, the developers allow Home Depot to demonstrate painting techniques, window treatments, landscape design, and other projects at show homes.
In another partnership, Home Depot and insurance company Allstate are collaborating to drive traffic to Home Depot stores while reducing home repair costs for Allstate. Under the arrangement, Allstate insurance adjusters encourage contractors to buy replacement materials from Home Depot stores, where prices are low. The benefits to Home Depot are significant: Allstate paid an estimated $100 million in claims for carpet damage alone in 2000, and Home Depot can now expect to gain a significant share of that business. (Muller et al, 2002) Product Development Strategy

The company is big on having only the most up to date technology implemented within each store. Over the past few years, the company tripled the amount spent on research and development to construct better systems, condense operations, and to implement a digital business system. Home Depot has always embraced innovation with its suppliers, advancing technology in the marketplace as well as creating innovative customer solutions. In light of the trend towards environmentally protective products, Home Depot escalated the use and availability of environmentally friendly products as a way to positively impact the environment. Home Depot declared and demonstrated its commitment to environmental issues with the creation of the Home Depot Foundation “a leading organization dedicated to creating healthy, livable communities by supporting the development of affordable, healthy homes for working families and by planting trees in parks, in schoolyards and along city streets.” (Home Depot, 2008) Home Depot has also completed the implementation of its centralized automated replenishment strategy, as well as engaged in a company-wide performance-measurement system where every employee is provided the direction, knowledge, skills, resources and support to succeed in their own career strategies. Where promotions were once based on who you knew, decisions will now be based on talent and overall contribution.
In 2006, Home Depot adopted a new product development strategy titled “ORANGE WORKS.” Its mission is to work with expert vendors on unique and proprietary innovation within Home Depot to meet the needs of emerging lifestyle and product trends. (Home Depot, 2006) ORANGE WORKS is part of Home Depot's longstanding commitment to offering customers innovative products, services and shopping experiences. Home Depot works closely with its manufacturing partners to develop differentiated products at an attractive price for consumers. To make this happen, Home Depot operates an "Innovation Center," an off-site facility that is a store-simulated environment. As well, in September 2006, Home Depot launched its first national home show, featuring top innovative products through live demonstrations, and continues to do so even during economically uncertain times. Additionally, Home Depot’s acquisition of Redbeacon, a company based in San Mateo, California, helps homeowners maintain and build upon the value of their home by connecting them with qualified local service professionals, and without the tedious hours of reputation research and tedious price comparisons (think Angie’s List). Its innovative solution uses a proprietary algorithm incorporating even the consumer's own Facebook® social graph to recommend professionals. (Home Depot, 2012)
Continuing this thought, a successful product development strategy doesn’t neglect the customer. A common mistake is asking customers what they want instead of investigating what customers need. (Kurtzman, 2004) Hence, Home Depot’s product development teams need to know the customer at least as well as those working in “after sales” customer service do. And once development is underway, customers need to be involved in the process. This could be handled through in-store demonstrations, surveys, and or focus groups examining prototypes of what the research and development team have put together. Once again strategic partnering is essential with an eye to building and managing rich information channels. Strategy to Protect Innovations

Traditionally, the service sector’s innovation and knowledge protection approaches are perceived as less sophisticated when compared to their manufacturing counterparts. However, service-intensive firms no longer focus on innovation through the use of acquired technologies. While protecting knowledge may reveal information in patent publications, for example, or send signals to competitors indicating that the firm considers certain development areas important, one of the consequences of obtaining and using knowledge protection mechanisms is that the time during which the firm can utilize the knowledge and innovations in a monopoly position (typically) lengthens. Being able to prevent others from using certain knowledge assets forces them to find (alternative) solutions on their own. Thus, the time to market for competing products and services is likely to be longer. Employees in any department may see inefficiencies in company procedures, such as manufacturing procedures, shipping procedures and so forth. Correcting these inefficiencies can reduce expenses and improve customer satisfaction.
As well, Home Depot continues to create an innovation culture by educating all personnel about the value of innovations to the company which goes a long way to addressing protection of innovative ideas. This innovative culture helps foster a team environment and increases the likelihood of identifying important ideas and suggestions. Home Depot doesn’t limit innovative activities to people in the “research and development” department; many examples of employees without any technical background often identify significant innovations that result in new product offerings for the company. An example is when an employee interacts with a vendor and discovers the vendor may have other products sellable at Home Depot yet not part of its marketing strategy. Making management and marketing aware of the product, or products, and creating a customer need increases sales and profits. Another way through which Home Depot can take advantage of the longer imitation lag is fostering its innovation performance. A company that can profit from innovation can afford to reinvest in commercialization and in further invention (Teece 2006). Besides, the company can learn from the customer feedback and direct its efforts into development activities that further increases value to customers. All in all, it could be assumed that the longer the imitation lag is, the higher the incentives to invest in innovation are (van Dijk 2000).
Through Home Depot’s wholly-owned subsidiary, Homer TLC, Inc., they registered or applied for registration, in a number of countries, for a variety of internet domain names, service marks and trademarks for use in their businesses. Moreover, through various acquisitions and filings, Home Depot also obtained and maintains patent portfolios relating to certain products and services provided by Home Depot, and continually seek to patent or otherwise protect selected innovations we incorporate into our products and business operations. Home Depot regards their intellectual property as having significant value and as being an important factor in the marketing of their brands, e-commerce, stores and new areas of business. (Home Depot, 2008)

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