Chief executive officer and chairman, Home Depot
Born: May 17, 1948, in Old Forge, Pennsylvania.
Education: Western Illinois University, BS, 1971; University of Louisville, MBA, 1975.
Family: Son of GE plant manager and homemaker/real estate agent; married Susan (maiden name unknown); children: four.
Career: General Electric, 1971–1988, manufacturing engineer, various management positions at GE Appliances, GE Lighting, and GE Transportation Systems; Case Corporation, 1988–1991, executive vice president and general manager of Case Construction Equipment; General Electric, 1991–1992, executive vice president and chief executive officer of Canadian Appliance Manufacturing subsidiary; 1992–1995, president and CEO of GE Transportation Systems; 1995–2000, president and CEO of GE Power Systems, senior vice president of GE; Home Depot, 2000–, CEO, 2002–, chairman.
Awards: Distinguished Pennsylvanian Award, Gannon University, 1995; Distinguished Alumni Award, Western Illinois University College of Business and Technology, 1997; Alumni Fellow, University of Louisville, 1999; Executive of the Year, Capital District Business Review , 2000; Executive of the Year, Schenectady County Chamber of Commerce, 2000; Honorary Doctorate of Business Administration and Alumnus of the Year, University of Louisville, 2001; Honorary Doctorate of Laws, Siena College, 2001; Honorary Doctorate of Humane Letters, Western Illinois University, 2002.
Address: Home Depot, 2455 Paces Ferry Road, Atlanta, Georgia 30339; http://www.homedepot.com.
■ After losing the competition to become CEO of General Electric (GE), Robert Nardelli was recruited by Home Depot—the world's largest home-improvement retailer—as CEO and later chairman. He overhauled the company's decentralized management structure and replaced its freewheeling,
entrepreneurial culture and its exuberant—some would say rowdy—atmosphere with "Six Sigma" managerial procedures. Utilizing GE's classic business strategies, Nardelli in stalled processes and systems, streamlined operations, moved into new markets, and grew Home Depot through acquisitions.
Robert Louis Nardelli was born on May 17, 1948, in Old Forge, Pennsylvania. His parents, who had grown up during the Depression, instilled in him a strong work ethic. His father had started at GE as an hourly worker and rose to plant manager. His mother kept the home for the two children and worked as a real estate agent. Nardelli was a mediocre student but a star athlete, altar boy, Boy Scout, class officer, yearbook editor, and ROTC cadet. He earned a football scholarship to Western Illinois University and worked summers paving high ways. Nardelli was built too small to fulfill his dream of becoming a professional football player and rejected a coach's career as too unpredictable. He joined GE as an entry-level manufacturing engineer—its lowest salaried position. At night he worked on his MBA at the University of Louisville.
By the late 1970s Nardelli was asking CEO Jack Welch to analyze his job performance. In 1988, after Nardelli had risen to a manufacturing vice presidency, he asked Welch for a general management job. Welch refused, and Nardelli quit. When Welch tried to talk him into coming back, Nardelli made it clear that his ambition was eventually to become CEO of GE. Instead, Nardelli became an executive vice president of the Case Corporation, an industrial-equipment manufacturer in Racine, Wisconsin. He headed the company's worldwide parts and components division and was promoted to general manager of Case Construction Equipment, its global business.
Nardelli returned to GE in 1991 as chief executive of CAMCO, GE's Canadian Appliance Manufacturing Company, based in Toronto. The following year he became president and CEO of GE Transportation Systems in Erie, Pennsylvania. There he oversaw the change in basic technology from AC to DC, doubled the size of the division, and took it global. He modernized product lines, expanded services, pacified angry unions, and more than doubled the division's profits.
In 1995 Nardelli was named a GE senior vice president and head of GE Power Systems in Schenectady, New York. The hundred-year-old manufacturer of gas and steam turbines and generators was in deep trouble. The division was considered an "old economy" backwater with almost no potential for growth. Its regional workforce had shrunk from 29,000 in the mid-1970s to only 4,600, with another 28,000 employees worldwide. The division's deserted factories were scattered throughout an alienated community.
To cope with energy-industry cycles and government turmoil around the world, Nardelli broadened the company's base. He took advantage of opportunities created by industry deregulation and increased power demands. He turned outdated manufacturing facilities into high-tech service centers for global customers. Nardelli helped formulate a strategy called the "metamarket view" to develop different ways for the company to serve a single customer. Nardelli reinvested in the core products of GE Power Systems, extended its product line, and acquired more than 50 energy-related businesses. He shifted from selling products to selling services, including long-term contracts to operate facilities.
In 1996 Nardelli instituted Six Sigma Quality Improvement Training at GE Power Systems. Pioneered at GE, Six Sigma aimed for the statistical near-perfect variation of 3.4 defects per million. It was a business process that relied on data rather than individual opinion. Six Sigma companies analyzed their processes to discover where defects could occur, measured those defects, and attempted to eliminate them.
GE Power Systems became one of GE's most profitable divisions and one of the biggest success stories in the company's history. In five years Nardelli increased profits almost sevenfold, with half of the division's revenue coming from new products. In addition, Nardelli repaired relationships with employees and the local community. Old factories were transformed into ball fields and green space. He initiated annual worker training and continuing education.
In an intense three-way competition to become CEO of GE, Welch chose Jeffrey Immelt. Nardelli was devastated. At GE he was known as "Little Jack." He had worked extraordinarily hard, and Welch had put him through many difficult tests. In June 2002 he told Patricia Sellers of Fortune : "There was always this rap against me about being functionally proficient but not very strategic." Nardelli also had a reputation for being somewhat inarticulate.
Nardelli had promised Welch that he would not talk to other companies until Welch had made his decision. Within minutes of the announcement, Nardelli was offered the presidency of Home Depot. He demanded the CEO's job. The Home Depot board was convinced that the company needed a sophisticated leader from the outside. In December 2000, after 27 years at GE, Nardelli moved to Atlanta with a compensation package amounting to $24 million in 2001. Although Home Depot cofounders Bernie Marcus and Arthur Blank continued on as cochairmen, Nardelli and the board soon asked Blank to leave, and Marcus later retired.
Marcus and Blank had a simple business strategy: continuous expansion. In 24 years they had grown Home Depot from a single warehouse store to a 1,155-store giant with $46 billion in annual sales. But costs were out of control, same-store (stores open for at least a year) sales were flat, profit growth had slowed, and the share price had dropped. Lowe's, Home Depot's major competitor, was doing far better.
After the announcement that Home Depot had hired a CEO with no retail experience, Nardelli tried to squelch concerns. In January 2001 he told Fortune that his personal management style fit in with Home Depot's corporate culture and that of all the companies he had looked at "Home Depot most mirrored the way I like to operate." In answer to a question about imposing GE-style management on Home Depot, Nardelli replied that "to move from one social architecture and operating system and assume it's 100% portable and the platform of understanding is there at the new place—that's a terrible mistake." In response to a question about GE executives who were unsuccessful as outside CEOs, Nardelli told Patricia Sellers in a March 2001 Fortune story that those executives "didn't realize they were in a different environment. They did not have the respect of the culture and weren't sensitive to the pride of the employees." Nevertheless, most of the 250,000 Home Depot employees had never heard of Bob Nardelli, and some company veterans were openly hostile.
His first day on the job, Nardelli was astonished to discover that Home Depot lacked the infrastructure to send a companywide e-mail. Its stores did not have automated inventory systems; shipments were logged with clipboard and pencil. Home Depot stores were run-down and had a reputation for poor customer service.
Nardelli believed that better processes led to better quality and higher profits. He increased information technology spending by 20 percent. In 2003 he spent $400 million on inventory shipping and tracking systems. He substituted 157 different employee evaluation forms with two. Salaried personnel from the CEO down were to be rated by coworkers, above and beneath them, and salaries were based on the scores. At a time when Home Depot was planning to hire about 100,000 new employees, Nardelli did not necessarily fire those with poor scores. He first sought the advice of others and told underperformers exactly what they were doing wrong. Nardelli created a leadership institute, modeled on GE's, to groom high-potential managers, teaching them all aspects of merchandizing, management, and, of course, Six Sigma. Although Home Depot had tried to implement Six Sigma earlier, it rarely had been used for retail businesses.
Although efficiency had never been a big priority at Home Depot, it was Nardelli's operating principle. The company had outgrown its laissez-faire "do-it-yourself" management style. Nardelli replaced Home Depot's decentralized structure of local store managers with a technologically sophisticated command center. In his first six weeks he eliminated an entire management layer. He combined divisions and reassigned or eliminated group presidents, with all U.S. division presidents reporting directly to him. Of the 39 senior managers, 24 left and were replaced by managers—many of whom came from GE—with no retail experience.
In January 2004 Nardelli told Institutional Investor "We've gone from 1,600 separate businesses under one banner to one brand with 1,600 stores. We went from nine buying offices to one." Centralized management meant better supplier prices and increased margins. Orders were routed from central purchasing in Atlanta, through transfer centers, to stores. Local suppliers were squeezed out, and Nardelli began buying out wholesalers. However, the new shipping systems required lower inventories, leaving some stores sold out of popular merchandise, such as electronics. Cutting inventories while pushing managers to move products resulted in fewer reorders. Home Depot's regional managers, used to cutting their own deals with suppliers, resisted their loss of control; many opted out and took early retirement.
Analysts began worrying that the company was changing too fast. Nardelli was criticized for dismantling the decentralized structure before investing in the information technology required for centralized management. However, between 2000 and 2002 annual earnings increased 30 percent to $3.7 billion. By June 2002 Home Depot was 18th on the Fortune 500, valued at $53 billion—the largest American retailer after Wal-Mart.
Upon his arrival, Nardelli immediately instituted cost-cutting measures. He slashed the number of new Home Depot stores scheduled to open in 2001 from 225 to 200. He cut fulltime jobs, capped wages, and recruited former military officers to run the stores. Staff morale and customer service began to collapse under the new regime. The number of part-time employees skyrocketed from 26 percent to as high as 50 percent in 2002. Nardelli argued that additional part-timers were needed to increase weekend staff, since the stores were now open on Sundays. In addition, for the first time Home Depot offered benefits to part-time workers and included them in its bonus program. Employee tuition reimbursements also were increased. Meanwhile, Lowe's kept full-time employment at 80 percent, resulting in better customer service. Nardelli eventually reversed direction, and the stores began to hire more full-timers.
Nardelli changed Home Depot's trademark open-return policy and began requiring receipts for cash returns, saving the company $10 million annually. He ended Home Depot's traditional—but costly—promotional sales. After eliminating more than $1 billion in inventory in 2002, there was no need for inventory-clearance sales.
In 2001 Nardelli introduced his Service Performance Initiative, which called for increased night restocking to avoid forklifts in the aisles and freed up personnel for customer service. Employees began to spend 70 percent of their time on customers rather than on restocking. "Racetrack managers" at each store circulated through the high-volume aisles to improve service.
Nardelli spent $250 million refurbishing Home Depot stores. Self-checkout systems were installed in 800 stores to reduce customer lines and free up salespeople. Two-way cordless scanners allowed products to be price-scanned in the shopping cart, thereby shortening lines. Nardelli began eliminating lowturnover items and permitted stores to tailor their offerings to local markets. Lowe's was considered to be more "femalefriendly" than Home Depot, so Nardelli upgraded stores and merchandise to appeal to women. Design Place home-decor departments opened in more stores, and small appliances, lighting, and lamp selections were expanded in an attempt to attract more female customers.
Supplying professional builders and contractors—who spend three times as much as do-it-yourselfers—became a top priority for Nardelli in 2002. He introduced "pro desks" and PRO stores to compete with independent wholesalers. Centralization enabled Home Depot to service corporate accounts. It began selling to Disney and gained exclusive rights to carry Disney furnishings and paints.
In 2003 Nardelli greatly increased Home Depot's services, adding carpet-laying, siding installation, heating, ventilation, installation of air-conditioning systems, high-end landscaping, appliance repair, pest control, home security, and tool rental. He expanded appliance sales, adding more brands and increasing appliance showrooms. Nardelli also launched an in-store campaign that promoted energy-efficient products.
Nardelli concentrated new stores in urban areas with apartment dwellers. Home Depot came to downtown Chicago and Brooklyn, New York. Two Manhattan stores opened in 2004. However, some experiments with new-format stores failed and were replaced with traditional Home Depots. Nardelli acquired Total Home, Mexico's second-largest home-improvement retailer. By the end of 2003 Home Depot had a new store opening in Canada, the United States, or Mexico virtually every 43 hours. In 2004 Nardelli began to expand the business into China.
Nardelli brought to Home Depot his strong personality, aggressiveness, and GE discipline. In 2001 the analyst Donald Trott told Jennifer Pellet of Chief Executive : "With Bernie and Arthur, the approach culturally was, 'We're part of the troops like you guys and we're going into battle with you.' But Nardelli does not look comfortable in that orange apron. His body language is more 'I am the general up on the hill with the binoculars; you guys go take on the enemy.'" Calling his executives in for weekend meetings, Nardelli reminded them that it was not a job but a life. Whereas Blank and Marcus had motivated employees with hugs and cheers, Nardelli sometimes motivated them by instilling fear.
Whereas the 10 people who had reported to Blank were brought together for a quarterly business review, Nardelli had 21 individuals reporting directly to him at Monday-morning meetings or two-hour "market intelligence" conference calls. He demanded their data and action plans. In November 2001 Dennis M. Donovan, who came from GE with Nardelli as his number-two person, told BusinessWeek : "Never show him a number you don't want to deliver, because he will remember." Some Home Depot veterans quit, while others felt respected and valued by Nardelli.
Nardelli had learned from Welch that teaching was a big part of a CEO's job. He met with employees considered to be on the way up. In November 2000 Lonnie Edelheit, a senior adviser at GE, told Capital District Business Review : "He is very open and positive. He's intense. He demands a lot from people, but he gives a lot too." Although he was thought of as an extremely serious person, Nardelli was famous for throwing lavish parties.
Nardelli was known for his directness. He held town hall-style meetings, sent out biweekly company-wide e-mails, and made a habit of visiting individual stores. He sometimes gave pay raises on the spot, as well as frank assessments of employee performance and future prospects with the company.
In March 2001 Nardelli told Sellers at Fortune : "What I'm known for is transferring best practices. That's particularly important in this economic environment, when you have to maximize revenues through existing assets." He summed up his philosophy in a June 2002 Fortune interview: "There is an infinite capacity to improve upon everything you do."
Nardelli's transition proved to be much more difficult than expected. By January 2003 Home Depot's stock price was down 50 percent from its December 2000 level. Analysts questioned Nardelli's ability to transform and run a large retail business and worried that he was trying to impose manufacturing-type processes on a retail business. Some analysts worried that the home-improvement market was saturated. Others blamed customer dissatisfaction with a new, overly ambitious inventory and staff changes that disrupted service. Nardelli blamed a poor economic and retail climate and deflated lumber prices that accounted for 15 percent of Home Depot's sales.
However, by the end of 2003 Home Depot was operating more than 1,750 stores in the United States, Canada, Puerto Rico, and Mexico and had posted a net income of $4.3 billion on $64.8 billion in sales, with a 162 percent increase in profits. By January 2004 cash reserves were at a record $5.3 billion, compared with minus $800 million when Nardelli arrived. Home Depot, with more than 300,000 employees, planned to open 185 new stores in 2004 and was buying up abandoned Kmart properties. However, at Home Depot's 2004 annual meeting shareholders objected to Nardelli's extravagant compensation package and continued to complain about poor customer service.
In 2003 Nardelli served as a director of the Coca-Cola Company and was a member of the President's Council on Service and Civic Participation. He also served as a member of the board of councillors of the Carter Center, a leadership-advisory group.
See also entry on General Electric Company and The Home Depot, Inc. in International Directory of Company Histories .
"A Do-It-Yourselfer Disaster: Home Depot," Economist , January 11, 2003, p. 57.
"The Fixer-Upper: The Former GE Exec Is Finally Getting Credit for Doing the Kind of Bold Renovations at Home Depot That the No. 2 U.S. Retailer Promotes Among Do-It-Yourselfers," Institutional Investor , January 2004, pp. 18–19.
Foust, Dean, and Brian Grow, "What Worked at GE Isn't Working at Home Depot," BusinessWeek , January 27, 2003, p. 40.
"Home Depot Mirrors the Way I Operate," Fortune , January 8, 2001, p. 87.
Pascual, Aixa M., "Tidying Up at Home Depot," BusinessWeek , November 26, 2001, p. 102.
Pellet, Jennifer, "Mr. Fix-It Steps In," Chief Executive , October 2001, pp. 44–47.
"Robert Nardelli, GE Power Systems," Capital District Business Review , November 6, 2000, p. 10.
Sellers, Patricia, "Exit the Builder, Enter the Repairman: Home Depot's Arthur Blank Is Out. New CEO Bob Nardelli Is In. His Job: To Tackle the Company's Renovation after Two Decades of Nonstop Expansion," Fortune , March 19, 2001, pp. 86–88.
——, "Something to Prove: Bob Nardelli Was Stunned When Jack Welch Told Him He'd Never Run GE. 'I Want an Autopsy!,' He Demanded," Fortune , June 24, 2002, pp. 88–94.