Home Depot Inc.’s Strategic Audit

Summary

Home Depot Inc. is the biggest home improvement firm in the United States that supplies tools, products for construction, and services. The organization’s headquarters are based in Cobb County in Georgia. The firm has grown very fast since its founding in the 1970s when it was developed by three business people who had quit Handy Dan Stores (Christian and Lozyniak,2019).

During that time, the organization had one store and yearly earnings of 23million dollars. Currently, the firm has developed into one of the biggest retailers and installers of home improvement appliances that serve many people and professional consumers. The firm presently stands at position three worldwide after Wall-Mart. Over the years, it has also had massive profit growth from approximately 45.7 billion dollars in the year 2000 to 81 billion dollars currently (Reference for Business, 2021). Its operating margin has improved from 9.2 percent to 11.5percent; showing that the firm is performing healthily, and thus, Bon Nardelli’s hard work has been appreciated.

Home Depot Inc.’s slogan aims to ensure its customers have an excellent experience after purchasing goods from their business contester mission. It focuses on considering its consumers’ needs and giving services that help improve their lives and homes. Through this, the firm’s vision has become real. The company’s primary objectives include the desire to become the most prominent firm in the retail industry, and to experience an improvement in its market shares through a fast-growing business culture (Piçarra, 2015). Therefore, this paper aims to conduct a strategic audit and competitive analysis of this firm.

Attractiveness of Industry

Industry attractiveness is the future profitability of a market. It can be measured by external factors like size of the market, growth rate of the market, competition structure, industry profit, technology, legal aspects, and political and environmental factors. The five forces by Michael Porter to show the attractiveness of Home Depot firm include, firstly, the Bargaining power with the consumers whereby customers face unwanted costs of exchanging competitors in the home improvement sector that offers them leverages over companies (Dobbs, 2014). Home Depot firm has solved this threat by providing their customers daily low prices of affordable and a robust portfolio of unique brands.

Secondly, bargaining power with suppliers had a significant threat since they had enormous leverage amounts over their suppliers, which allowed them to conduct genuine and lucrative deals with the suppliers to come up with values that are customer friendly. Thirdly, the threat of substitutes is the biggest threat to Home Depot firm as discussed above on bargaining power with customers; other firms give them opportunities to purchase what they need at a different place at a lower price.

The company has tried to instill loyalty among its consumers and make the company popular by basing on culture and consumer satisfaction to respond to this threat. Additionally, the dangers of new entrants were determined to be low since it was almost impossible for a start-up company to reach the level of Home Depot because of their established supply chain network, market, and brand loyalty which has taken years for them to create. Lastly, competitive rivalry is a moderate threat since it is mature in the market and leads in the industry (Dobbs,2014). Therefore, this gives them an advantage over other firms as far as competition is concerned.

Key Success factors

The critical success factors that have resulted in this firm’s growth include good leadership management and planning. Under Craig Men’s leadership, the company has recorded improved profit margins, with the margins rising from 45.7 billion dollars in 2000 to 81 billion dollars. Has proven to have a good planning skills since the firm has already installed 900 more stores under his leadership, a sound investment strategy (Djashan & Lawira, 2018).

These stores have been vital in the rise of the profit margins that have been experienced. Online investment has enabled this firm to develop a website and mobile software for marketing purposes. For every product marketed online, a good level of knowledge is shared with the customers, from the basic description to the detailed ones (Dobbs,2014). It has helped guide their customers while shopping for their products; they have enabled a much simpler layout that can be quickly navigated, making it easy for their customers to use.

The company has had continuous investments like developing an omnichannel strategy that has leveraged its stores online. Home Depot has an excellent employee-customer relations strategy. The need to serve its consumers even better has helped create loyalty among its customers since they are provided the best experiences. They aim to improve their homes and livelihoods and keep improving their customer care services (Erskine et al., 2015).

Additionally, they maintain the uniqueness of their products and maintain their prices at a more achievable price. The company has established itself as an all-rounded firm whereby when customers lack money; they are still permitted to conduct home improvements often. Improved technologies, such as stocking technology, have focused on easing stocking shelves’ protocol (Vault, n.d.). It has resulted in significant profit margins since they can quickly determine the products lifted from the stands that require replacement quickly.

SWOT Analysis

Strengths

Home Depot enterprise has the required resources to undertake its growth strategy, and its financial records hint that the firm has assets worth 91 billion dollars, revenues of above 81 billion dollars, and enough earnings that may be used to help the firm pursue its 3E’S strategy and develop to popularize and integrate its business portfolio (Stock Analysis On Net, 2021). This company also has a large workforce that is influential in marketing its products and enhancing customer satisfaction and care. Additionally, the structure and style of Leadership under Mr. Craig are unique and use an approach that demands a lot from their employees (Zheng, 2017). Lastly, the firm’s organizational culture to ensure customer satisfaction has been instrumental to its success as they aim to achieve excellence.

Weakness

This firm’s business operations are majored in Northern America, which makes the firm lack a global representation that is vital. Respected firms in the world operate with an international approach which increases their commercial excellence in case of saturation in the local market. Some regulations associated with compensation appear to be expensive, which may seem unsuitable for the organization’s shareholders (Reference for Business, 2021). Shareholders have a right to improve their investments, and therefore, a friendly compensation policy should be achieved to prevent interfering with the firm’s vision.

Opportunity

The firm should take on the opportunity to make its business global by widening its businesses out of the US and getting into the European market. It could improve its vision by putting more energy into noble markets that provide more opportunities than the North American market. The firm ought to absorb its competitors by obtaining those enterprises to maintain their market leadership (Erskine et al., 2015). Consequently, a reduction in satisfaction ratings should be considered an opportunity that the organization uses to show its consumers how it cares for them and improves its sales and image.

Threats

Competition from its close competitors like LOWE poses a threat to this firm’s business excellence, and hence they ought to stay innovative to outshine their competitors. Being overly ambitious and aggressive can be a significant threat to the firm as they can utilize all the finances resulting in a financial mess forcing them to overstretch their resources (Djashan & Lawira, 2018). Therefore, a realistic and safe ambition should be maintained to avoid subjecting the firm to financial threats.

Strategic Options

Home Depot Company has integrated the multichannel strategy in its e-commerce and primarily based its distribution capability the supply chain management and has fully merged its web and store inventory. The company is using an online platform as well as physical stores to sell its products. Delivery of the goods to the customers after an online purchase is another strategic plan that home depot could apply to enable the company to have a competitive advantage. Other marketing alternatives for the products being offered are strategic options that Home Depot is considering to expand its pool of customers. Strategic choices are essential for the company because they help in planning and improving the performance of the company (Stock Analysis On Net, 2021). Strategic options have also been introduced to prepare the company in case of leadership change.

Resources, Capabilities, and Competencies

The company has a wide range of resources and a good track record of profitability. The organization enjoys high net sales that expand its asset base while making capital expenditures when advertising and sponsoring capital events. The organization spends approximately three billion on its expansion of the business portfolio, indicating that it is vital to support its growth (Piçarra, 2015). Home Depot has assets that total over forty-five billion, meaning that it can fund its activities and grow simultaneously, giving it a better competitive advantage.

Human Resources

The company has an extreme and advanced human resources strategy responsible for helping the administration make decisions and choices when hiring, retraining, or endorsing its employees. Home Depot functions intend to reduce costs while increasing the output among its workforce. Hence the company may choose to hire seasonal employees depending on the consumers’ traffic. The company has only 69% of its total labor force as permanent employees (Erskine et al., 2015). Home Depot has a radical and customized employee training program that organizes training sessions for its employees depending on their duties and needs. It has integrated automatic proprietary systems that are useful in helping the company select the best employees (Dobbs, 2014). The human resource has integrated an employee award and compensation system that works based on competitive market rates and gives commissions, cash bonuses, badges, and base salaries to its employees.

Information Systems

The company uses barcoding technology and a UNIX operating system that allows the company to attain high levels of efficiency in its functional departments. The information and technology department helps the company avoid redundant processes and save on costs (Piçarra, 2015). The department maintains the central server of the company to ensure the records are fed into it accurately and allow analysts from the different departments to get access and help in making business decisions. The company also uses back-end technologies and upgraded multiple systems to improve the organization’s business functions.

Marketing Operations Resource

The organization’s commercial success is highly dependent on the marketing ability of the employees who devote their intervals to the selling floor (Stock Analysis On Net, 2021). The marketing capabilities of their employees are an essential resource that the company has. The resource has propelled Home depot to develop exceptional customer service despite many challenges and deprived ratings compared to other corporations. Home depot has successfully incorporated merchandising strategies that permit the company to sustain a low-price model and stock its enormous stores with extensive merchandise diversity. It also owns approximately 85% of its malls, enabling it to run smoothly (Reference for Business, 2021). The establishment also uses direct marketing and location, which has helped them close down inactive stores and open more strategically located to maximize their sales and avoid self-cannibalization.

Competitive Advantage

The company has an improved supply chain of its products, is well exposed to its customers, and a fantastic product value that keeps enhancing its customers’ loyalty. The company has an initiative called the One Home Depot that has enabled them to better their supply chain and exposure (Erskine et al., 2015). The strategy connects the customers to the associates and connects the products and services to the customer’s needs. The company has an expanded interconnection between its stores and online markets, which gives it an advantage over other firms (Djashan & Lawira, 2018).

Home depot has developed an improved mobile application that enables functions such as in-store maps that lead the customers to the exact location of the products they are looking for. The in-store maps help the customers save on time, giving Home Depot an advantage over other competitive stores. The application also tells the customers whether the products they are looking for are available and how much it costs, enabling them to make prior budgeting before they even visit the store.

The company has many stores strategically located in the area and hence easily accessible, which attracts more customers, making it an advantage for Home Depot. Home Depot also runs its operations on the customer’s views because the customers have the ability to decide what they want. The strategy has improved the loyalty of the customers and made them better in the industry. The highly maintained culture of the establishment gives it a competitive advantage because the customers enjoy excellent services at all times, and the culture supports its outstanding management. Therefore, many factors put into consideration have made home depot to have an advantage over other companies.

Financial Ratios and Accounting Measures

One accounting consideration unique to this company is the recognition of revenues, its liabilities, and the expenses it requires. The accounting challenges are presented in how goods are handled, making it difficult to recognize the parameters in separated forms fully. Usually, the received and outgoing stocks pose hindrances in determining revenues where the prices may fluctuate due to the governments’ taxation or the manufacturer’s pricing (Djashan & Lawira, 2018). The company’s financial ratio is calculated based on different factors like the working capital ratio, showing Home Depot’s ability to pay its current liabilities using its existing assets. The quick ratio indicates how well the current liabilities have been covered with ready cash valued items and the ready cash present.

Earnings per share measure the total income gained on particular shares of a company’s common stock—the price-earnings ratio that reflects the investor’s evaluation of future earnings. The debt-equity ratio is used to evaluate how much the company is borrowing and improve the safety margins behind what it owes (Erskine et al., 2015). Home Depot Inc.’s financial ratio on adjusted total asset turnover ratio deteriorated from 2019 to 2020 and from 2020 to 2021. The debt-to-capital ratio calculated by dividing the adjusted total debt by the sum of the total debt and total equity showed that it has deteriorated since 2019. The adjusted net profit margin is calculated by dividing the total income by the total revenue reduced from 2020 to 2021. The liquidity ratio of the company has dramatically deteriorated from 2019 to 2021 (Stock Analysis On Net, 2021).

Analysis of Growth Options

Home depot has used an aggressive strategy that allows it to grow. The process is referred to as the 3E’s strategy and aims to enhance the core, extend the business, and expand the market (Reference for Business, 2021). The method effectively guarantees growth and ensures the corporation delivers quality products and services to its customers as the business grows.

Horizontal and Vertical Integration

Home depot has diversified its operations in one single industry. The horizontal integration has been aimed at increasing the market share of the company. The company intends to remain in the same sector, dedicated to providing its customers with home improvement products. The strategy aims to acquire new enterprises quickly and enhance the growth projection (Zheng, 2017). The design has also created scale economies, increasing the negotiating leverage with their suppliers and promoting practical goods and service delivery to the customers. The company has also enabled vertical integration by merging various stages of activities in the distribution channel. The company has achieved this in multiple ways;

Innovative services and products

Home depot is working with suppliers’ associates to make exclusive and pioneering products for its customers. The introduction of the tools powered with lithium-ion batteries is an example of a product with a constructive response from clients (Piçarra, 2015). The business is determined to offer good services with a competitive advantage hence expanding its market to many regions.

Integrated Retail

Integrated retail has been one of the most outstanding achievements in the last decade that has seen sales growth without necessarily investing in different physical assets. The strategy connected the offline and the online channels, making its stores more efficient, and increasing the revenue and profits (Zheng, 2017). The business has also maintained customer satisfaction scores and continues to invest in such strategies.

Support Services for Pro Customers

The firm’s Expert section is a pivotal contributor to its development, with awareness competitiveness execution (ACE) sales outperforming the do-it-yourself (DIY) section. However, the company focuses on the requirement of its pro clients beyond the outmoded store contributions (Vault, n.d.). Home depot is determined to help the pro customers grow and manage their businesses and link them to the DIY customers via its pro referral program.

Supply Chain and Delivery

Home Depot is expanding its supply and delivery operation with more channels in the network. The acquisition aims to fasten the delivery and reduce the product contact throughout the chain, especially with Covid-19. The expansion has seen the company extend its services globally.

Potential Strategic Alliances

The strategic alliance has allowed Home depot to grow without necessarily expanding its size and incurring extra costs. It has allowed the company to test the market for potential growth, enter a new market, access new technology, accelerate research by sharing resources and costs in creating products, and get better prices in the marketplace, allowing expansion of its ability to serve its customers globally (Zheng, 2017). Such alliances by the Home depot include Stanley, which is their national supplier of the branded hand tools, operation Homefront, purple heart home, operation blessing, team Rubicon, volunteers of American, Semper FI Fund, and Stephen Siller Tunnel to tower foundation.

Potential Acquisitions

Home depot has made several acquisitions in enhancing its competitive edge. The management evaluates its strengths and weaknesses in determining the best cause of action: home-based solutions such as “one home depot” or obtaining a firm with the needed skills according to its goals. Acquisition of the farm store in 2017 was a leader in décor products and online textile (Reference for Business, 2021). The acquisition has enabled the company to leverage its web presence and increase the décor offering. In 2017, the company acquired compact power equipment which was an equipment maintenance and rental company (Reference for Business, 2021). The acquisition helped the company lift client satisfaction, especially the pros section of clients, and boost their gear and tool rental services (Reference for Business, 2021). Home Depot also made a significant acquisition of Interline. Interline was a large-scale supplier of upkeep products. The attainment has been widely accepted mainly due to its success rates in maintenance, repair, and operation distribution.

Recommended Strategy

Since the home improvement industry is constantly subjected to seasonal variations, there is a possibility of revolutionary strategic change for the growth of the corporation. Home depot can contemplate using a strategy mix that gives the company the power to function with a high degree of suppleness that is unswervingly related to the unpredictable industry surroundings.

Using this strategy, the company will be able to chase a stable growth strategy and at the same time exercise some carefulness and also rid or economize resources when the need rises. The company should continue expanding since opportunities are available in some US market regions but cautiously before increasing their investment level when the market seems saturated. Through growth and careful planning, the company can achieve its goals; this care is attained using pause, augmentation, reduction, and caution strategies dependent on the market’s economic state.

It is also essential for the company to have the needed human resources who share common ambitions with top management to realize its desire for home improvement. In addition, the board and the top management should be continuously evaluated so that the whole leadership can be considered skilled and efficient to lead the company towards attaining its target and goals. The company can create a competitive intelligence division in the marketing department that will be used to manage the efforts organized with an enactment committee to guarantee that a more continuous approach is used to evaluate how strategy progresses within the organization. The marketing department, research, and development should be immediately modified so that the company can be in tandem with the prevailing market since the operations of Home depot are threatened by competitors like Menard, Lowe, and the real estate business.

References

Djashan, I. A., & Lawira, A. (2018). Company financial ratios, company ownership and company conditions on earnings management: Proceedings of the 7th International Conference on Entrepreneurship and Business Management, 44–48. Web.

Dobbs, M. (2014). Guidelines for applying Porter’s five forces framework: A set of industry analysis templates. Competitiveness Review, 24(1), 32–45. Web.

Erskine, A., Camillo, A. A., Bajada, A. J., & Holt, S. (2015). The Home Depot: A competitor’s strategic audit, a case study. In A. A. Camillo (Ed.), Global enterprise management: New perspectives on challenges and future developments volume II (pp. 171–189). Palgrave Macmillan US. Web.

Piçarra, M. B. S. G. (2015). The Home Depot: Leading the market. Web.

Reference for Business. (2021). The home depot, inc. – Company profile, information, business description, history, and background information on the home depot, inc. Web.

Stock Analysis On Net. (2021). Home depot inc. (Nyse:hd)| adjusted financial ratios. Stock Analysis on Net. Web.

Vault. (n.d.). The home depot u. S. A. | company profile | vault. Web.

Zheng, S. (2017). The failure of home depot in china—A case study. Business and Management Studies, 3(4), 54. Web.

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BusinessEssay. "Home Depot Inc.'s Strategic Audit." December 27, 2022. https://business-essay.com/home-depot-inc-s-strategic-audit/.