Please take a look at this comment by Dan Steele that defends Bob Nardelli’s management of Home Depot. It’s a good defense of his Six Sigma management. Since being appointed by the private equity group that bought Chrysler to run it, many Six Sigma folks (especially ex-GE people) have come to Nardelli’s defense I don’t know Dan’s background but his defense is Six Sigma conventional wisdom about Nardelli.
Here it is:
“Retailer stock prices are based on same-store year to year comparisons and NOT overall profits. Once a retailer has matured, that Street measurement of it’s value is just plain flawed. In Nardelli’s case, he was handcuffed by that flawed measure of success. Nardelli’s style may not be sexy, but the Home Depot recorded record profits under him. His performance was actually extraordinary. Let’s not confuse stock price with profitability. Six Sigma is simply about efficiency. It’s not something to be feared or demonized. He will not be handcuffed at Chrysler and I’m guessing they will appreciate the record profits coming their way. (And Bruce, you need to do your homework.)”
Dan is absolutely right about profits rising under Nardelli. But the reason the stock market didn’t reward Home Depot and Nardelli for those profits, I believe, is that they came out of new low-margin, cyclical, wholesale business Nardelli built that is now probably in deep trouble thanks to the subprime mess and the sharp drop in housing. If Nardelli were still in charge at Home Depot, profits would be shrinking sharply under him—the stock market predicted that and kept Home Depot’s stock price low. And, of course, Home Depot is now getting a much lower price for the sale of its wholesale unit than it expected before the housing bust.
There are a few companies that can use Six Sigma to promote innovation and the online issue of Inside Innovation shows how Starwood does it. Taking new ideas that come up from the brands, testing them and then spreading them throughout the corporation can be made more efficient by Six Sigma.
But that is not what Nardelli did at Home Depot, which troubles people looking at Chrysler. At Home Depot, Nardelli, as an outsider, came in and rejected Home Depot’s pro-consumer DNA and its expertise at creating great consumer experiences. Home Depot needed help in its business process, but Nardelli, instead built a whole new wholesale business and bled the retail consumer operation to pay for it. He brought in ex-military folks with a very different culture. All this to build a wholesale building supplies business with low margins and huge sensitivity to the housing cycle.
And why? Because it could all be better measured. That doesn’t work for me. Sorry. It’s fine to build a new business. Just start a new company. But rejecting corporate DNA, eroding the consumer experience, making your company more vulnerable to what turned out to be a calamity in housing—that’s not wise. And not the kind of experience you want at Chrysler.
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