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Monday, October 25, 2004

Depot Goes Digital - Bob Nardelli's Approach and Vision

Bob Nardelli is managing a $2 billion technology transformation of Home Depot. The transformation is so insightful and full of detail, we shall publish some selective excerpts that appeared in Chief Executive magazine in two parts. This is Part 1 of the series.

On Understanding and High Level Technology Vision Push
- When I got here, it was important to really be a dry sponge and kind of immerse myself into the business. You know what you know from a leadership standpoint. That’s probably 75 percent of the job. But the other 25 percent you’ve got to absorb. I always felt it’s incumbent on the CEO to be on a vertical learning curve. Bob Says, He saw a lot of labor, a lot of tasking going on. It was a little bit like the adage, “When in doubt, add a body.” The example I always use about the inability to do emails. I walked through the store and I saw people manually doing inventory, counting boxes.I walked into receiving and I saw data entry, bills of lading and invoices. So what I saw within the four walls of the business was a tremendous amount of human intervention. And I knew that it was ripe for the opportunity then to take that valuable resource through digitization, and reapply it to sales. This is not about digitization for elimination. This is about digitization for reapplication. I’m getting more pull than push through communication and demonstration that would ever be envisioned for pushing the technology.
On self-checkout - That’s 40 to 60 hours that can be shifted to the selling floor, as opposed to tasking. We’ve gone out and done some benchmarking, for example, with UPS. And you look at finger bar code readers. And you look at the ability to get certified receiving. You look at bar coding for inventory taking, if you look at perpetual inventory replenishment. Those are all huge opportunities.
Bob Nardelli says, For all the productivity we’ve delivered in the past three years, we have the ability to deliver that much more. So you should feel good about where we are positioned, relative to productivity and earnings per share and cost leverage, because we’ve got that much more opportunity in front of us.” We’re only touching the mega-platforms right now. We’ve implemented PeopleSoft, and I don’t know another company that flipped the switch like we did last month on SAP, on the full suite. We closed the (financials for the) month of June, right out of the box. We have an opportunity in logistics and in supply-chain management, we have the opportunity in merchandising. There hardly is a place in the business where we can’t use existing technology. I kind of kiddingly say we’re taking a major leap to the present. For some retailers, it’s old hat. For Wal-Mart to have point-of-sale, to be able then, at the register, to regenerate inventory replenishment, is something we’re moving to.
On How the team was put together with the skill sets needed to undertake this technology revolution - A. It wasn’t like I showed up cold. I knew we had to change our approach to information technology. We were somewhat of a deli counter: first in, first out. We really didn’t prioritize the return on investment relative to our overall operating strategy. We needed some mega-platforms. At the same time, we needed some kind of quick hits, so that we could show the legitimacy of what we’re doing, because people had been disappointed here in what IT delivered. So we immediately said we need to get somebody best in class. We need somebody who’s been there, done that. We needed somebody with a lot of scar tissue, who had been seasoned, who was used to dealing with mega-volume, i.e., Bob DeRodes from Delta and Citibank. Sometimes you put people in a job to grow them. Sometimes you put people on the job to grow the job. Bob, in his own right had his own revolution going on at Delta, really changing the culture, changing the expectation, raising the bar on accountability and one creating business pull versus IT push.
On The Approach: - Then what you want is somebody who can do architectural design at the mega-platform level, so the sum of the systems plug together, so that the sequence of implementation is right. It doesn’t do any good to create a system and then find out that the data flow that goes into it is not clean or is not automated. We did a lot of mapping on this.Then Bob started to very systematically bring in best in class again. We scoured the globe to bring in these individuals who have proven track records. In some cases, they were chief information officers themselves in smaller business but were excited about joining a bigger business whose leadership team embraced information technology.

On getting straight answers:
I hope we have created an environment here where the unvarnished truth can come out and we can deal with an issue honestly, up front and in a constructive manner. It’s only when you hide those things from each other and the business that you have these major conflicts. So I think this integrative process, these program reviews, these project reviews, the visibility to project status (red, yellow, green) not only from a financial standpoint, but from a tasking standpoint, has all been healthy for us.

So the overall technological transformation is working?
A. I think it’s working extremely well. We have legitimatized technology at the Home Depot. If you read the book The Ten Deadly Sins of K-Mart, and I’m not pointing a finger, one of the biggest sins is technology aversion. To a certain degree, we had that within the company. We thought we didn’t need technology, we were better than that, we could overcome it with passion and energy.” What we’re finding is we want passion and energy and technology to really be competitive in today’s world. Is it without angst? Is it without moments of anxiety? Are there not moments of confrontation? No. But my business compass tells me we’re headed in the right direction, and that we are building credibility and capability as we go along. The issue now is, going faster. Customer survey data has shaped everything we have done. The customer said, “ we love Home Depot. You have more convenient locations by a factor of two than your nearest competitor. We love what you’re doing on store modernization—cleaner, brighter, more navigable stores. Get me out faster.” We now have over 800 stores plus with self-checkout, with over 30 percent customer utilization and 40-some percent reduction in queue time. Then we went to the cordless scan gun. You get the pro customer out faster, because you don’t have to unload the cart and reload the cart. The cashier is no longer tied to a cord, and it’s not only cordless scan guns, but it’s two-way. In other words, they can actually see on a screen what’s showing up on the cashier screen. It’s not a dumb trigger. So, No. 1, we get them out faster. No. 2, ergonomically, it’s a home run. Associates aren’t bending over, picking up bags of concrete. They’re not pulling off sheetrock. Third, it’s a big help on shrink (inventory loss). The accuracy of, you know, you got ten sheets of dry wall, two sheets of OBS, you’ve got two by fours … before, the cashier was kind of counting, running back, push it in. So our shrink has improved
It was a lot of investment. We installed 5,000 miles of cable, 90,000 devices last year. Now we’re working our way from front to back, from customer to back room. So that’s why we’re working on back-end automation receiving, automated receiving. . Now what we want to do is digitize the internals of the store, introducing scanning into receiving, so that we can get certified receiving, so that we can get accuracy and speed. If I have certification on the back, I got POS on the front. I now can do automatic replenishment. We are aiming for the Wal-Mart model.
On RFID (Radio Frequency Identification Devices): - Wal-Mart’s using, and I was thinking, Before I can use it, I have to have the store wired to be able to read the RFID. That’s an emerging technology. If it works, we shall be there.
. Part II shall be published shortly.
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