Lessons From Home Depot's Bob Nardelli--Why Command And Control Is So Bad.

Posted by: Bruce Nussbaum on January 4, 2007

I just got back from a long stay in Sante Fe to gather my thoughts on innovation and design to see what I consider to be one of the great enemies of innovation—Home Depot’s CEO Bob Nardelli—bite the dust. Nardelli is a classic, GE-trained Six Sigma, command-and-control CEO and he imposed his mechanical process on a company that was known for its great fuzzy-front-end, pro-consumer culture. At a time when companies are learning that they are in the business of building tools to empower customers to create their own, personal products and services, Home Depot was literally in that space decades ago. It faltered and brought in a systems guy—trained in 1990s GE—and made the classic mistake that other companies make. Unfortunately, the new guy replacing Nardelli is another GE-alumnus. Let’s hope he’s more like Jeff Immelt than Nardelli.

Nardelli came into Home Depot with a managerial style that was already obsolete and being replaced at GE by Immelt with his emphasis on eco-imagination. Autocratic top-down, command and control works great when you focus on process—cost and quality. Six Sigma measures all that stuff wonderfully. Nardelli couldn’t see beyond this. He hired dozens of command-and-control military guys to manage. He shifted Home Depot away from retail to a new contracting business that could more easily be controlled and measured. He was comfortable with this low-margin, wholesale business because it fit into his managerial style. When you live by measurement and numbers, that’s what you build—things you can easily measure—such as whole contracting operations. Nardelli gutted the retail side by cutting the great, knowledgeable salespeople who were so helpful to customers. Seth Godin gets it right when he says that consumer complaints about Home Depot soared under Nardelli. He alienated his customers, his employees and ultimately, his shareholders, who were infuriated at Nardelli’s huge compensation while the stock languished. Nardelli’s arrogant behavior at the last annual meeting seemed to seal his fate. His compliant board which gave him so much money despite that lagging stock price, finally bought him out with an outrageous package. They really should be following Nardelli out the door themselves.

The truth is that in the new global businss culture, process controls and metrics are critical to any big company but they are now sediment, one of the things that is commoditized and laid down on the corporate structure to make way for the discipline and process of innovation. Immelt gets this at GE. But the graduates of GE who learned their management styles in the 90s often do not get it.

Partnering with your consumers, innovating with them, managing insights, raising the level of risk-taking, pursuing high-margin, new products, leading collectively and through example—these are some of the traits for 21st century CEOs. Nardelli had few of them. It’s time for Home Depot to get back to its DNA before it’s too late. Another round of 20th century GEism and the company will get sold to the private equity guys.

Reader Comments

Georges de Wailly

January 6, 2007 2:27 PM

Excellent article Bruce,
Methodologies like Six Sigma are perfect in production and manufacturing. But a manufacturing process is NOT a Business process. Simply because humans are not machines. A good product is a product which helps its owner to climb in the Maslow's pyramid. Now, take this assertion and try to define metrics allowing to verify that your product is significantly helpful for this purpose!..
Once defined, try to apply Six Sigma DMAIC methodology on all the data you have collected.
You will find the conclusion by yourself:
Intuition is a much more powerful tool.

David Carlson

January 6, 2007 10:46 PM

Bob must have lived in a parallel universe according to me. Today a lot people (private, bloggers, press, organisations etc) would like to have a second opinion about how a company is acting. You cannot just put your head in the sand...

steve baker

January 8, 2007 4:45 PM

Hey Bruce, I looked back at our cover story on him and was intrigued by the subhead:

Skip the touchy-feely stuff. The big-box store is thriving under CEO Bob Nardelli's military-style rule

Looks like there's a good point-counterpoint brewing in here.

Bob Sutton

January 10, 2007 11:04 PM

Steve,

The headline aside, that March, 2006 article suggested that all was not well at Home Depot. Performance was stalled and he was creating a culture of fear, in fact, as I wrote on my blog, I hope that one reason he was fired was that the board had enough and was enforcing "the no asshole rule."

In any event, this quote from the March 2006 article does not sound like a CEO who was doing a great job, and it sounds to me like bad headline rather than a counterpoint.

" BusinessWeek spoke with 11 former executives, a majority of whom requested anonymity lest the company sue them for violating nondisclosure agreements. Some describe a demoralized staff and say a "culture of fear" is causing customer service to wane. Nardelli's own big-time pay package, $28.5 million for the year ended Jan. 30, 2005, rubs many workers the wrong way. His guaranteed bonus, the only locked-in payout at the company, rose to $5.8 million in 2004, from $4.5 million in 2003, at a time when Home Depot's stock price finished below its yearend price in 2000, when Nardelli took over."

Charles H. Green

January 15, 2007 3:57 AM

Well seen and well said. The big press issue about Nardelli, of course, is the severance package, but the real issue is as you pointed out, the C&C model.

Put another way, the 90s ethos was heavily influenced by the still-new discovery of BPR, ERP, and by increasingly widespread IT capabilities.

These, in combination with the command and control style, combined to have another resurgence (they seem periodic) of the belief that everything can be reduced to linear, logical, "scientific" systems. (You can tell these people, they're the ones who look to physics as the paradigm and who are admirers of B.F. Skinner).

All those techniques worked very well when applied to materials flows and supply chains. They began to fall flat when applied to the front end of business, which unfortunately contains human beings.

The result of this kind of behavioral and mechanistic thinking: not only Nardelli, but CRM systems, automated answering systems, and so-called "loyalty" programs whose model is the prize in a cracker jacks box.

Command and control still has its place (though the customer- and employee-facing parts of large consumer companies are not among them). But the belief that humans can or ought to be managed like so much cold-rolled steel inventory is alive and well in more places than Home Depot, and needs rooting out.

Thanks for an excellent post.

artt

February 3, 2009 4:37 PM

Homedepot replaces hard working employee with people who never comes to come or pretend from working home, too much politics at Home depot. Truth will win one day...

MJD

May 21, 2009 4:30 AM

thought you mght be interested,,,

Jeff

February 6, 2010 3:15 AM

I disagree with you. I think you are misjudging Nardelli based on bad press. If you look at the facts, you will see a much different story about him.
The more you dig into this, the less you will see him as a militant who was blindly bossing everyone around. He wasn't a warlord who is so self-absorbed that he is not self-aware. That type of person typically does not achieve the heights he has achieved. Bob is hard-charging and process-driven, as mentioned, but he also walked into Home Depot with his eyes wide-open as to the type of challenges he was going to be facing. He knew that he was entering a culture quite opposite of his. Home Depot was filled with people in the image of their original founders – Marcus and Blank. They were independent, non-traditional, and casual.
The board who hired him had both foresight and some guts. They saw Nardelli come available and they struck before anyone else could – because someone else surely would have. Bob came to Home Depot full of hope and ready to try and connect with the people. Unfortunately, Home Depot was so set in their ways, the employees openly revolted against him. They were hostile and obstinate. No matter what we might say about how Bob should have been a more charismatic leader, he was up against forces that were bigger than him. In retrospect, I think that even Starbucks founder, Howard Schultz would have faced these issues. It wasn’t necessarily because Bob was focused on processes, it was because Bob wasn’t good old Arthur Blank or Bernie Marcus. Nardelli realized how dangerous this mindset was for Home Depot and acted quickly and decisively. The massive turn-over in personnel at Home Depot was a result of non-conformists, those who deleted voicemails from the corporate office and ignored emails, being removed. I think we can all agree that this is destructive behavior in an organization. If there is no respect for legitimate power, then a business will quickly turn into anarchy. Bob didn’t arbitrarily replace employees and managers – he replaced those who weren’t doing their job sufficiently. This should be commended, not reprimanded. The fact that he chose to replace many of these positions with Junior Military Officers (JMOs) is actually a brilliant strategy. JMOs are highly educated, experienced, and can make good decisions fast. Further, they are typically willing to relocate to less-desirable areas.
The stock market’s downfall was not a result of Bob’s lack of communication – it was a result of analysts finally realizing what the board had realized early on – that Home Depot’s culture was inefficient and destined for trouble. Bob actually made a bold move by hiring Dennis Donavan and making him the second highest paid in the company. Dennis was an HR specialist from GE and he was brought in because of Bob’s realization that he needed to sell his changes. By 2003, Nardelli had begun to shift the attitude of Home Depot employees. They were starting to gather on his side. They were seeing the result of his changes and were realizing that he might actually know what he was doing after all. What Nardelli actually did when he came to Home Depot was strike down an insurgence by firing the rebel leaders. This was brilliant and well-done. This was also necessary to allow Home Depot to fend off Lowe’s.
Despite some strategic errors – like the shareholders meeting – he was very qualified for the job. Allowed to continue, he would have continued the upturn that Home Depot was making and eventually, as almost poetic justice, Nardelli’s data would have told the story and led to the stocks to rise.

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Patrick Wheat

August 8, 2010 5:44 PM

Jeff, your comments are absolute nonsense. How much did you get paid for that post? Unlike you, I worked at Home Depot during the "Great One's" tenure. Bob Nardelli is no different than any of the other megalomaniacs running American corporations thing they actually deserve 100 million dollar pay packages. The only interesting question left is how did Jack Welch know that this guy was a bum.

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January 6, 2011 1:12 PM

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January 8, 2011 1:05 AM

Hands down, Apple's app store wins by a mile. It's a huge selection of all sorts of apps vs a rather sad selection of a handful for Zune. Microsoft has plans, especially in the realm of games, but I'm not sure I'd want to bet on the future if this aspect is important to you. The iPod is a much better choice in that case.

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March 3, 2011 3:26 PM

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Want to stop talking about innovation and learn how to make it work for you? Bruce Nussbaum takes you deep into the latest thinking about innovation and design with daily scoops, provocative perspectives and case studies. Nussbaum is at the center of a global conversation on the growing discipline of innovation and the deepening field of design thinking. Read him to discover what social networking works—and what doesn’t. Discover where service innovation is going and how experience design is shaping up. Learn which schools are graduating the most creative talent and which consulting firms are the hottest. And get his take on what the smartest companies are doing in the U.S., Asia and Europe, far ahead of the pack.

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