The Depot goes digital: how CEO Bob Nardelli is managing a $2 billion technology transformation

Chief Executive, The, Oct, 2004 by William J. Holstein

When Bob Nardelli arrived as chief executive of The Home Depot in December 2000, the by-now infamous story is that he asked how to send an email to the managers of each store across the country. "There is no way," he was told. The stores simply were not linked electronically, not with each other and not with the company's headquarters on the outskirts of Atlanta.

That was just the beginning of what Nardelli discovered. Coming from a technology-intensive environment at General Electric's Power Systems unit. Nardelli was surprised to learn that Home Depot was light years behind the blistering pace that Wal-Mart had set in retail technology. He saw employees counting boxes and processing bills of lading and invoices by hand. Bar codes, the essential building block of modern retailing, and widely in use by other retailers, had not been introduced.

[ILLUSTRATION OMITTED]

The technology gap, combined with Home Depot's difficulty in hanging on to skilled sales representatives, meant that the customer experience at its cavernous stores deteriorated: Things were hard to find and checkout lines were way too long. All of which gave Lowe's. Home Depot's leading competitor, an opening to nip at its heels with a user-friendlier image.

Nearly four years later, Nardelli, now 56, is relying in large part on technology to change all that. He's halfway through a $2 billion technological transformation. His nearly 1,800 stores, across the United States and in Mexico, have been linked with enough fiber optics and coaxial cable to run from Atlanta to San Francisco and back. Some 90,000 desktop computers were installed last year. Self-checkout systems from NCR have been introduced. Cordless scan guns from Symbol Technologies help cashiers check out bulky items without removing them from carts. Point-of-sale information is being electronically captured.

Elsewhere, online training programs are helping the work force to provide better service, and the company has started placing electronic kiosks in, say, the plumbing aisle to allow customers to go online to find the perfect showerhead, thus limiting the number of faucets on display. This is the "special order" business.

The overall transformation is an undertaking of staggering complexity, particularly since Home Depot keeps expanding and is now a $64 billion behemoth with more than 300,000 employees. "We're changing the engine while the plane is still flying," Nardelli quips.

It's still too early to tell whether technology can completely alter the customer perception that Home Depot's service is lacking. Only a third of Home Depots, for example, currently offer self-checkout.

"Businessman First"

But the way Nardelli is managing the technological transformation is attracting attention. He has borrowed from the CE playbook to create a system of checks and balances on how technology is managed, and he has integrated technology decisions deeply into his business strategy. Nardelli also has resorted to forging deeper relationships with fewer vendors, and he maintains personal dialogues with John Chambers of Cisco and Sam Palmisano of IBM, among others.

The Nardelli decision-making model may help establish a pattern for other CEOs who have been deeply frustrated by their lack of success in harnessing technology. The era of chief information officers spending money freely on fanciful technologies is long gone, of course. But so too might the deep freeze in capital spending of the past three years be thawing. Because Home Depot has been spending robustly through the bust, Nardelli seems to be ahead of the curve in figuring out how to manage technology in a way that actually benefits the underlying business. "It's not the tail wagging the dog," says Chambers. "The dog clearly understands where it wants to go and is using IT to implement that strategy."

The story begins with the team that Nardelli brought with him from GE. One player is Frank Blake, who is now executive vice president for business development, and a second is Dennis Donovan, executive vice president for human resources. When the enormity of the challenge dawned on them, they realized they needed a seasoned CIO and Donovan went out to find one.

They picked Bob DeRodes, who had held key technology jobs at AMR's Sabre Croup, which handles many of the underlying technologies for American Airlines, at Citibank's credit card operations, and, most recently, at Delta Air Lines. "He's a businessman first," Nardelli says pointedly, not a technology-for-technology's-sake person. DeRodes started in 2002 and the team built a road map for their tech ambitions. The data they collected from customers suggested that the biggest frustration was the checkout process, which is why the team targeted self-checkout and scan guns as a first priority.

The governance process that Nardelli has created (see diagram, page 32) starts with business units and top management deciding what their technology needs are. This Strategic Operating and Resource Planning process, as the company calls it, is coordinated not by DeRodes, but by Blake. Individual IT projects are then put through a financial review, or what Nardelli calls a "proforma," by CFO Carol Tome, who has been at Home Depot since 1995.