The Home Depot's Dennis Donovan on Why Change Drives Competitive AdvantagePublished: March 08, 2006 in Knowledge@Emory
To say that The Home Depot is growing fast is an understatement. Second only to Wal-Mart in the retail category, the company brought in more than $73 billion in sales in 2004 and added 20,000 employees – bringing the total number of associates to 325,000. Today, there are approximately 2,000 Home Depot retail stores located in the United States, Canada and Mexico. On average, a new Home Depot store opens every 48 hours. And, the company is expected to add 20,000 additional net new jobs in 2005, which will bring the number of associates to 345,000.
How does a company manage growth at this level? According to Dennis Donovan, The Home Depot’s executive vice president of Human Resources, it starts with a documented process for driving change. Recently, Donovan shared his experience with change management as part of the Global Dean Speaker series at Emory University’s Goizueta Business School.
In late 2000, newly appointed Chairman, President and CEO Bob Nardelli was challenged to design a clear strategy for continued growth for the company. Human Resources (HR) was an integral part of that strategy.
When Donovan was tapped to join The Home Depot in 2001, he says there were two fundamental issues with the business. First, the infrastructure was insufficient to handle the growth. Second, the decentralized business model created significant operating inefficiencies.
It was a daunting task to take the company – at the time of Nardelli’s hire, a $46 billion company – and attempt to grow it to $100 billion in a matter of years – not decades. “Achieving that depends on one thing ... and that thing is change,” explained Donovan.
Donovan defined HR’s role with an equation: VA=Q x A x E. In other words, the Value Added of Human Resources equals Q, the Quality of what you do, times A, the Acceptance in the organization, times E, how well you Execute. “Most organizations can drive high Q but very few organizations create high A … which makes it impossible to be high E,” he explained.
He went on to add, “Change is not one-dimensional. If change is the engine that drives your company, you have to hit on all cylinders.”
During the lecture, Donovan utilized several flowcharts to illustrate The Home Depot’s change process. One of the charts covered the company’s planning approach called SOAR – Strategic, Operating and Resource Planning. He then moved the discussion to how to effectively implement these plans.
Donovan stated that every leader has four key levers to pull to effectively implement strategic, operating and resource planning. The first is setting direction – essentially gaining understanding, commitment and accountability throughout the entire organization. Second is people – building a high performing, diverse workforce. Third is putting in place sustainable process and systems – to gain enterprise capability and operating efficiency. And last, is designing the right structure – an enabler for direction, people, process and systems to work together.
One of the levers requiring the most attention was “process and systems.” A now legendary anecdote highlights the lack of infrastructure in the company. When Nardelli first took over at The Home Depot, he wanted to send an email to all the store managers but was told he could not. Nardelli thought he was being advised that it was counter-cultural, but in reality he couldn't because there was no ability to send email to the stores. That’s no longer the case. Today, the company spends $500 million a year on technology.
Donovan, who met Nardelli at GE and like Nardelli, holds the Six Sigma process improvement methodology in high regard, and implemented its use at The Home Depot. “Today’s organization has to align around a process so that it sees the customer, the supplier and the company as a single entity,” noted Donovan.
Human resource planning is the cornerstone of the SOAR process. One of the first areas where The Home Depot looked to enhance was its leadership – across the company and especially at the store level.
In late 2001, the company started an unprecedented effort where they set out to hire a human resource manager for each of its 1,300 stores in a mere 12 weeks. Donovan stated, "95% of our associates are in the store—this is where I needed my best HR talent."
From there, The Home Depot developed a series of leadership programs to attract and retain the best and brightest talent available. These programs feature cross-functional job assignments, mentoring, formal classroom instruction, and leadership development, Donovan explained.
In 2002, the company introduced the Store Leadership Program, which provides associates with a strong foundation of leadership, technical, and strategic skills, and offers a fast track to store manager and beyond. To date, more than 1,000 associates have completed this program.
The company’s Business Leadership Program, a two-year program for MBA graduates, gives top management candidates the chance to reach higher levels of achievement by joining the most outstanding talent in business today. And, the company’s internship program, the Future Leaders Program, was rated as one of the nation’s best by the Wall Street Journal.
Donovan outlined other company programs, including a Merchandising Leadership Program and an Internal Audit Leadership Program. In addition, the company recently launched its Retail Leadership Development Program, a comprehensive curriculum for retail management.
The Home Depot also introduced two executive level programs – the Accelerated Leadership Program and the Executive Leadership Program. These courses combine self-paced training, classroom learning, action learning projects and individual development plans. ALP and ELP are hosted by Goizueta’s Executive Education Department and facilitated by leading academics and consultants who team teach with Nardelli’s senior leadership team.
Hiring 20,000 new employees a year is an overwhelming task and Donovan wants to make sure the company attracts the best possible employees (the company receives over 17 million employment applications a year), retains those employees, and keeps them motivated. Donovan says often that “our competitive advantage is our people.” So far, so good: the company has less than a third to half the attrition of other large box retailers. In order to assist with the hiring, the company needed to put in an HR infrastructure which included Web-enabling the application and testing process and the introduction of mass hiring events, which allows stores to come together by market to staff up for Spring, the retailer’s busy season.
In recent years, Donovan added, The Home Depot has partnered with national nonprofit and government agencies to develop several key hiring partnerships. These hiring partnerships provide the company with a unique pipeline to assist the company in attracting top talent. The Home Depot launched its first national hiring partnership with the United States Department of Labor in 2002. In early 2004, the company formed a hiring partnership with AARP to attract, motivate and retain eligible older workers as part- and full-time associates in new and existing stores across the country.
In September 2004, The Home Depot launched Operation Career Front, a joint hiring initiative with the U.S. Departments of Defense, Labor and Veterans Affairs to provide career opportunities for America's military who are interested in transferring their unique skills, knowledge and abilities into a successful new career. Donovan noted that in February 2005, the company collaborated with the Hispanic Association on Corporate Responsibility (HACR) to form a hiring partnership with four of the country’s leading Hispanic organizations; The ASPIRA Association, Hispanic Association of Colleges and Universities (HACU), National Council of La Raza, and SER – Jobs for Progress National.
On the community relations side, the company has national partnerships with KaBOOM!, Hands On Network and American Red Cross among others. In total, the company supports 5500 non-profit organizations. “We want to be the corporate leader in the marketplace, the workplace and the community,” noted Donovan. “They are inextricably linked.”
The Home Depot also introduced a performance management process that aligns the organization around achievement as it links associate performance with individual rewards and company success. Prior to Donovan’s arrival, there were 157 different appraisal forms, but no uniform metrics. The current process utilizes three basic documents: 4-Block metrics (financial, operational, customer and people), performance screens, and performance and development summaries that drive rating distribution and reward differentiation throughout the business. Performance management touches every part of the enterprise including hourly associates. Last year, through its Success Sharing program, The Home Depot handed out $90 million in rewards to its full-time and part-time associates.
One basic output of the SOAR process is the company’s strategy to enhance the core, extend the business, and expand the market. “Put this together with our operating and human resource initiatives … and that’s how we’ll get to $100 billion,” stated Donovan.
Responding to a question about the rate of change, Donovan said, “the best definition I have ever heard of a healthy organization is one where the rate of internal change exceeds the rate of external change.” He went on to explain that the velocity of change is determined by market opportunities and competition, not by factors internal to the organization.
Driving effective change yields strong business results. From 2001 through 2004, revenues have increased by $27 billion and earnings per share have more than doubled. Not surprisingly, several brokerage firms recently upgraded The Home Depot’s stock. As the number one home improvement retailer in the country, Donovan adds, The Home Depot is doing what it can to ward off competitors and retain its competitive advantage not just in the marketplace, but in the workplace and in the community as well.