Home Depot management shift seen as healthy sign

Home Channel News, Oct 8, 2001 by Terry C. Evans

Analysts and some suppliers say exodus of executives reflects a company in transition

ATLANTA -- One by one, veteran Home Depot executives who were critical to the company's early and recent success have been hanging up their orange aprons for good. Expect more of the same, observers say, and that could mean a very different Home Depot.

Late last month Vein Joslyn, a 17-year veteran, and Barry Silverman, with 14 years under his belt, became the latest long-time Home Depot executives to resign. The departures came less than a year after both men had received promotions; Joslyn to president of the company's Midwest division and Silverman to president of Home Depot's Expo Design Centers division.

A company spokesperson stated that the pair left to "pursue other business interests." In doing so, they joined other high-profile executives such as CEO and president Arthur Blank, chief administrative officer Ron Brill and chief merchants Bill Hamlin and Mark Baker, who, for various reasons over the past two years, have all stepped down. Even Pat Farrah, a company founder, has seen his role in the company reduced.

Industry watchers speculate that the most recent high-level departures are at least partly because Home Depot is a different company, thanks to the arrival of new CEO Bob Nardelli last December. Prior to joining the world's largest home improvement retailer, Nardelli built a nearly 30-year career with General Electric, where he was known for controlling costs and seeking efficiencies. Now, the new chief appears to be applying that same sharper-than-ever focus on the bottom line to Home Depot.

Changing leaders

To do that, Nardelli is gradually installing a handpicked team of lieutenants -- a task that he appears to see as crucial. In the company's annual report for fiscal 2000, talent and leadership development were among a handful of business imperatives identified for this year. Unlike the past, however, when the drivers behind Home Depot's success were its freewheeling merchants, Nardelli appears intent on building a more centralized management structure.

"How they operate the business is going to change in the future," said Wayne Hood, a securities analyst at Prudential Securities Research. "It's not just about opening new stores; I think it's about how to make those boxes more productive using best practices across the boxes. Instead of having everybody doing their own thing, you'll see more common practices across the entire chain. I think the entire supply chain is going to be turned upside down at Home Depot, as evidenced by what we've seen now in the buying organization."

Hood is referring to the retailer's new centralized purchasing setup, announced in late July, which shifts a majority of buying responsibilities from Home Depot's regional offices to a dozen merchandising vps in its Atlanta support center.

Supplier impact

One long-time Depot supplier, who represents seven manufacturers from hardware to roofing, moved to Atlanta to be closer to the company's new centralized team. After 14 years of selling to the retailer, she views the new management style as a dramatic shift, but one that has not been disruptive.

"They're not trying to swing the pendulum too far," maintained Sara Hogan, director of marketing for Birmingham, Ala.-based Conner Sales. Hogan also agreed with other observers who have found the new style to be more "hands-on."

"People are being held more accountable to their objectives," said Hood, noting that could alienate some Home Depot veterans. "In some ways, people would not want to work in that environment. They were very much a merchant-driven organization, and they still are in many ways, but I think that they're going to be much more disciplined, more numbers-oriented and more accountable for everything."

Consequently, Home Depot's new intensified business style has improved suppliers' communications with and access to the retail giant, vendors say. Additionally, they have noticed that Depot's more focused approach has helped to spot inefficiencies in stores, like shipping delays and slow product turnover, faster than ever before.

"Home Depot is more aware of what is not working, which is a good thing for them," Hogan said.

Entrepreneurial shift

But not everyone assumes that the changes are for the better. One Home Depot executive, who recently retired after nearly two decades with the retailer, said that a focus on accountability is instilling fear in key executives, who are now afraid to make tough decisions. He believes that many longtime company veterans who have left did so since they lost their entrepreneurial freedom.

"There were too many people watching them," said the former executive, who requested anonymity. "When too many people question what you do, you start to lose faith in yourself and you start losing the entrepreneurial [spirit] that made this company great."

Other observers insist that turnover is only natural when a CEO with a different perspective and new expectations is brought in from the outside. That could be especially true at Home Depot, where stock options have made many long-time executives relatively wealthy.