How Home Depot Learned To Manage Complexity
Stanley Feld M.D.,FACP,MACE
Last week I had a great experience at Home Depot. Bernie Marcus and Arthur Blank founded Home Depot in 1978. When Home Depot started customer service was king. The customer came first.
"Bernie and I founded [The Home Depot] with a special vision — to create a company that would keep alive the values that were important to us. Values like respect among all people, excellent customer service and giving back to communities and society."
In the early 2000’s after Marcus and Blank retired, customer service was no longer king. Home Depot had lots of inventory but there was no one around to help customers find what they wanted .
Lowes surpassed Home Depot in customer service. Lowes grew at a faster rate than Home Depot.
Over the last few years I notice that Home Depot was trying to get its act together. However, I had become a Lowes fan. I went to Home Depot occasionally just to give it another chance.
Last week I needed some lumber to fix our deck. In the past, it had been a traumatic experience to find the right sizes of lumber at Home Depot by myself. I would wander around the lumber section for at least an hour before I found the best pieces of lumber. Home Depot had a lot of some things but was out of others.
Last week, Jeremy Felts greeted me in the Home Depot Lumber Department at our local store. He asked me what I needed. He then proceeded to gather the best lumber in the correct size. He even asked me if I wanted him to custom cut the lumber.
I had picked up some wood screws on the way to the lumber department. He looked at my screws and told me he would get me better screws for my project at a lower cost.
He helped me to the checkout counter and got me a guy to help me load the car.
I could not believe it! This had not happened at Home Depot in at least 14 years.
Every Do It Yourselfer forgets something or runs out of something during a project. On Sunday morning I was back in Home Depot to get more caulking and various size washers. This time Lyle Bruckman greeted me.
He took me directly to the washers and pulled out the three sizes I needed among the 50 choices. This little exercise would have taken me 20 minutes. He then walked me to the caulk.
I was in and out of the store in five minutes.
A few years ago this same experience in Home Depot was traumatic. What happened at Home Depot to actually service the consumer once again?
I then remembered the story of Home Depot in my brother, (Charlie Feld's) book, “The Blind Spot.”
When Home Depot hired Robert Nardelli in 2000, he hired the Feld Group (my brother’s company) to help figure out their information technology problems. Home Depot needed information technology to solve its inventory problems.
It turned out that each store managed its inventory with their own computer system. The store manager also managed his employee and was responsible for customer service.
From each store’s own experience the store managers and employees figured out their local customers’ needs.
This is an example of an experiential learning system.
There are three types of learning systems.
- Complicated (i.e. scientific, electronic, information technology)
- Complex (The interaction between 1 and 2, pattern recognition)
Wal-Mart negotiates the lowest prices using a system of central procurement. Wal-Mart managed its complicated inventory system by distributing products locally according to the needs of the individual stores. Store managers ordered products from the central procurement office rather than individual vendors.
Using sophisticated information technology everyone’s incentives were aligned. Wal-Mart central negotiated the best price for all the stores. Local stores ordered their own inventory from Wal-Mart central. Employees maintained their enthusiasm because they felt a sense of control of their own store.
Wal-Mart managed complexity by using a hybrid of central complicated technology and local experiential knowledge.
No snow blower’s were sent to Texas. Wal-Mart was able to get “The Best For Less” to the right stores.
Wal-Mart also learned that by some magic that this hybrid use of complicated learning systems and local experience produced incentives that created efficiency in each store.
At the time Robert Nardelli became CEO of Home Depot procurement was decentralized. Different stores were paying different prices for products. Profit margins were variable.
Robert Nardelli wanted centralized procurement. He invested heavily in information systems that negotiated prices centrally. He rejected the notion of permitting local stores to have control over their store needs.
The result was chaos. Store managers became dispirited. Employees became dispirited. It was not their store anymore. Home Depot Atlanta controlled everything.
Customer service plummeted, customers left Home Depot for Lowes and the stock price fell.
Since Robert Nardelli left Home Depot the focus has been on the customer service expressed by Bernie Marcus and Arthur Blank in Home Depots original mission.
Home Depot has combined negotiating prices centrally with the experience of local store managers. Home Depot is managing complexity to the extreme satisfaction of the customers.
The result is seen in the enthusiasm of Jeremy Felts and Lyle Bruckman. Last Tuesday night I was back in Home Depot for more stuff. I bumped into Jeremy Felts. He told me his store manager Brian Worley read my letter of commendation to visiting district and regional managers with him being present.
He said he was embarrassed but thrilled. He also said “ You know Dr. Feld I love my job.”
Can the same management of complexity be accomplished for the healthcare system? I know it can be done.
It cannot be accomplished with the orientation of President Obama’s Healthcare Reform Act (Obamacare).
The opinions expressed in the blog “Repairing The Healthcare System” are, mine and mine alone.