Home Depot VSEP

Home Depot Virtual Shopping Extension Program 1

Running head: HOME DEPOT VIRTUAL SHOPPING EXTENSION PROGRAM

Home Depot Virtual Shopping Extension Program

William J. Museler

University of Phoenix - Online

Management of R&D and Innovation Processes

TMGT 591

John Neels

February 5, 2007


Executive Summary Memo 3

Home Depot Virtual Shopping Extension Program (VSEP) 3 Table 1.0 5

The Home Depot Virtual Shopping Extension Program Genesis 12 Environmental Analysis 14

Objective: 14 SWOT Analysis 15

Internal Environment 15 External Environment 16

Home Depot Customer Demographics 18 Home Depot’s Corporate Culture 19 Opportunities 19 Technology Road Map 21

Phase 1: Preliminary Phase 21 Phase 2: Development Phase 21 Phase 3: Follow up Activity 22

Critique and validate the roadmap: 22 Develop an implementation plan: 22 Review and update: 22

Project Segmentation 23 Methodologies 24 Financial Project Plan Assessment 25 Phase Two Project Personnel Requirements 29

Table 3.0 32 Financial Projections and Considerations 32

Table 4.0 34 Table 5.0 34 Table 6.0 34

Project Analysis and Review 35 Home Depot Virtual Shopping Extension Program Global Deployment 36

Introduction 36 Marketing Challenges 36 Marketing Deployment – Targeting with the Right Media 37

Table 7.0 39 Global Resource Management 40

Conclusion 41 References 42


The Home Depot

Memo To: Professor John Neels

From: William J. Museler

CC:

Date: February 5, 2007

Re: The Home Depot Virtual Shopping Extension Program Executive Summary

Home Depot Virtual Shopping Extension Program (VSEP)

The new initiative launched by Home Depot in the form of the Virtual Shopping

Extension Program (VSEP) will allow access into markets which had previously seen

little to no growth by the company. This program will connect the inventory system of

each store to an online kiosk style consumer website. Both residential and commercial

customers can shop, order, and pay for items and be assured that the items will be at the

store upon arrival. This system benefits the company in three distinct ways. First, the

program is an innovative ordering process in this market. Customers will be able to plan

work out in advance then find out if materials required are available, the new system will

suggest other store locations for items which are out of stock. The second benefit of this

system is that the company will have a better defined picture of inventory in and out

flow. Establishing delivery routes and partnerships with distributors will be easier since


the system will in effect be a real time database. The third benefit will be an expansion

into the construction industry. Specifically in the small business construction fields

where delays in material support can cut into slim profit margins. This system gives

web-mobile capable contractors the ability to have inventory and ordering information

where ever they and when ever they need it.

A decision has been made to turn it into a profit center by spinning off the system

and attendant supporting services into a separate business entity that will sell product and

services to the global business community. In order to focus the efforts of this project

into a cohesive strategy two markets will be examined Europe and China. In the

European market “[C]onstruction output in 19 key European countries is expected to

grow by +2.6%, to reach € 1297 billion (US$ 1651 billion) in 2006” (International

Construction [IC], 2006, para. 1). This is a market largely untouched by Home Depot

and could be a profitable entry market. In China “. . . spending on residential building

construction [is] growing at 7.1% annually and nonresidential construction activity [is]

increasing by 7.4%. . .” (Jana, 2006, para. 2).

As seen by the cited statistics, Europe is a growth market. Internally, “Spain and

France are predicted to show the strongest growth this year at +4.4 and +3.7%,

respectively” (IC, 2006, para. 4). Long term the average growth rate for residential

construction is expected to level out at between 1.7% and 1.8% (IC, 2006, para. 6), while

this is not an attractive incentive to move into this market remains a consideration.

Barriers to entry into the European Union vary depending on the market.

In contrast China has a much more robust forecast in the industry. China is also

considered in most forecasts as an emerging market. Home Depot began an effort to


expand into this market in 2004 by entering “. . . into an arrangement to lease commercial

office space in Shanghai to support a retail initiative in China” (Home Depot Inc. [HDI],

2006, p. 4). This initiative has established financial and business relationships in

Shanghai and Shenzhen which should prove useful if this operation were to proceed.

In general the following table lists a basic listing of barriers to entry into global

markets.

Table 1.0

(Reynolds, 1999, p.7)

This listing is by no means inclusive but does point out key items to be addressed.

To begin with the environmental aspects, China has strong obstacles with regards to

cultures and languages, tariffs, quotas, development laws and cost of logistics and

communications. China’s history of being used by foreign nations in its past has brought

forth a mistrust of foreign controlled investment and represents an inherent barrier. The

Chinese communist government is slowly recognizing the benefits of capitalism through

its control of Hong Kong and will probably continue with its gradual easing of

investment restrictions. The Chinese culture and language also represent a barrier to

companies from the US because of their tendency towards remaining within their own


culture and not adopting foreign norms and practices. Logistics will also play a role since

China is physically half a world away from the US headquarters of Home Depot.

Europe has these same barriers but in a more muted form. The US and Europe

have been trading for several centuries and their cultures are intermingled to some extent,

trade disputes do arise but are generally reconciled amicably. The main difference

between the two markets is in the reaction of local competition. Europe has an

established and somewhat mature residential and commercial building industry which

Home Depot would have to overcome. China is an emerging market and thus

significantly more open to entry.

The recommended course of action would be to establish a separate business

entity and focus its beginning operations in China. China represents a new market that

has the potential to eclipse the US market in years to come. The projected growth of the

nation as it integrates into the global business community is almost an exponential

growth for the foreseeable future. Europe is a mature market, even though Home Depot

has no presence there and would offer a significantly different product it must still

overcome the obstacles of entering into a mature market with established market shares

and brand recognitions. The cultural, linguistic and other obstacles that China has are all

barriers which must be overcome.

The Home Depot Virtual Shopping Extension Program (VSEP) requires a

substantial commitment to change in infrastructure and the corporate culture. Moving the

company from a strictly warehouse system to a customer integrated supply partner. The

VSEP changes the operational aspect of the organization by providing services which the

company has, at its core, shied away from; namely the packaging and loading of


merchandise in stores. The warehouse style model has worked successfully but is not

compatible with expanding into emerging markets or the construction/commercial

market.

The US construction industry “. . . accounts for just under 5% of GDP . . .” (The

Economist Intelligence Unit Ltd., 2006, p. 49), in 2003 this represented “. . . a seasonally

adjusted annual rate of U.S. $ 933.2 billion . . .” (International Construction, 2004,

Abstract). In smaller terms, the construction industry in this country is comprised of

thousands of small corporations among the giant construction firms such as Toll

Brothers. In a letter published by the Associated General Contractors of America it states

that:

“Construction is a low-margin industry. Internal Revenue Service data for 2002

shows that the 649,000 corporations in construction had net income (less deficit)

of $28.4 billion, or 2.6% of total receipts of $1.1 trillion.” (Simonson, 2006, para.

7)

This project seeks to take a segment of this market. As noted small business

contractors function under small margins and as such rely on work volume in order to

maintain profitable status. This combination leaves almost no room for delays which fall

outside weather related obstacles. The ability to have a supply chain partner with the

volume purchasing power of Home Depot coupled with no downtime in sorting materials

in the store should be viewed as value added to small business contractors.

This new program will also add to the customer service aspect of the business by

providing value added service for the customer. The VSEP will be an optional method


for both Do-it-yourself (DIY) and commercial customers to plan and pay for supplies for

future projects.

Establishing this system in a market and having it tied to the brand image of

Home Depot is an excellent way to begin this project. It benefits the company by

spreading brand recognition and serves as a beta testing platform for the system. In

attempting to adopt this program into a generic use program certain changes will be

necessary. The system as it was conceived relied on exiting infrastructure within the

company to make the program function. Specifically the existing integrated inventory

system and warehousing retail locations. In order for this system to function as a generic

platform it must be able to provide the same level of service for every customer. To

accomplish this, the customer must meet minimum requirements with regards to the

mentioned infrastructure. Technical assessments must be made with regards to specific

databases and versions but there must be in place computerized inventory tracking

systems which can be connect to a network. The customers must also have the necessary

warehouse or retail space available to package and store orders, this will be dependent on

the industry and products the customer retails. As an example, Home Depot deals in

large size home improvement material which can weigh several tons and take up several

hundred cubic feet of space; whereas a company similar to Macy’s deals primarily in

clothing so the area involved and the total of the items per customer would tend to be

smaller.

Marketing this product for use by companies outside of Home Depot could be in

the form of loose partnerships. Kitchen design firms could partner with Home Depot and

customize the program for their needs. Having the ability to design a kitchen and tell a


customer exact dates material availability would make an attractive marketing item.

Other firms may simply use the program to augment their existing on-line shopping

system. Marketing this program for use in outside cultures represents a different matrix

of challenges.

For the chosen market, China, this is not a difficult hurdle to overcome. In China

there are “. . . more than 40 million personal computers [that] have access to broadband. .

.” (World News Connection [WNC], 2006, para. 3) while “. . . e-commerce transaction

volume has grown by 50-60 percent over the past couple of years and is expected to

maintain fast growth for several years to come. . .” (WNC, para. 2). This would indicate

that the cultural differences relating to internet commerce are marginalizing as time

progresses. This should not always be taken for granted however. Potential customers

must be made aware of these risks before considering purchasing such a system. It is in

Home Depot’s interest to ensure that the product is tailored to the customer to ensure

proper implementation for the simple reasoning that it could reflect badly on the Home

Depot brand.

In considering this system for deployment outside of the US markets it would be a

prudent step to consider utilizing local human resources within the country being

selected. These resources could include recruitment firms, marketing agencies and

possibly hiring a consultant with expertise in cultural integration, such as a professor

from a local university. Utilizing localized resources is a win-win proposition for the

company seeking to expand into a market. The expertise and contacts of the local firms

are a valuable resource and would take years to acquire otherwise. Using these resources


also creates a more inclusive nature regarding the venture into the foreign market, rather

than pushing into the market blindly and without support from local business.

Technology transfer problems can arise in this type of program when there are

such differences in language, culture and machinery. Technology platforms must be

standardized between the two entities in order for a smooth operation to occur. The

basics of standardized software and hardware are a must in making the operation

function. A stark example of a catastrophic technology transfer error occurred to the

NASA planned Mars lander operation. The operation failed “. . . because one

engineering team used metric units while another used English units for a key spacecraft

operation. . .” (CNN.com, 1999, para. 1). This simple oversight led to the loss of a $125

million dollar space probe. Technology transfer is a critical step in global operation since

technology is involved in most every transaction in business today. Opportunities do

exist in these types of operations. Technology from a company which desires to use the

product may augment or prove better than that being used currently. In such cases a

careful review must be undertaken to determine the impact of integrating forward with

any new technology that may influence other systems within the organization even

though they do not have a direct link to the proposed system. As an example if a

company such as Apple chose to utilize the proposed system and it was determined that

the Apple operating system provided substantial advantages over the one currently being

used, this change would have to be researched as to how it would affect the rest of the

operation. The hardware for the entire company would have to be changed since the

inventory system is company wide. Changing out the computers to meet the


requirements of one program would have repercussions regarding the software and the

associated licenses being used on the existing computer platforms.

With the appropriate due diligence, development and implementation this

program can be marketed for use by competitors and other industries. The simple

premise belies the technical challenges involved but with a well thought out plan and

proper technical integration the challenges can be overcome and the system installed.


The Home Depot Virtual Shopping Extension Program Genesis

The Home Depot® “. . . is the world's largest home improvement specialty

retailer, with 2,087 retail stores in all 50 states, the District of Columbia, Puerto Rico,

U.S. Virgin Islands, 10 Canadian provinces and Mexico” (Dayhoff, 2006, para. 2). While

this position is a stable one the company does exist in a highly competitive market. Its

only close competitor in terms of market capitalization is Lowes Companies, which has

only 40% of the market capitalization compared to Home Depot (Yahoo Finance, 2006,

Top 10 Home Improvement Retailers 2004 Sales). This is in addition to other privately

held home improvement stores and foreign competitors such as Canadian Tire based out

of Toronto, Canada.

Home Depot lists its mission statement as being able “. . . to provide the highest

level of service, the broadest selection of products and the most competitive prices. . .”

(The Home Depot, Inc., 2006, question 4). Setting a goal such as this in a market as large

as the home improvement market is an arduous task. When the company was founded

the idea of warehouse shopping was in its infancy. Home Depot was an innovator in

creating a new industry of do-it-yourself (DIY) homeowners. Over time as the company

grew they were able to leverage their market share to create brand name products

especially for Home Depot at discounted rates, these companies include John Deere and

Webber Grills. As in most competitive markets, staying ahead of competition is about

being efficient, flexible and innovative. In this way I am proposing an entirely new way

of interaction with the customer through the use of the internet, wireless communication,


computers and phones. This new system will directly connect the customer with the store

in a way that has not been attempted before.

The premise of this new system is to connect the inventory system of each store to

an online kiosk style consumer website. Both residential and commercial customers can

shop, order, and pay for items and be assured that the items will be at the store upon

arrival. This system benefits the company in two distinct ways. First, it is an innovative

ordering process in this market. Customers will be able to plan work out in advance then

find out if materials required are available, the new system will suggest other store

locations for items which are out of stock. The second benefit of this system is that the

company will have a better defined picture of inventory in and out flow. Establishing

delivery routes and partnerships with distributors will be easier since the system will in

effect be a real time database.

This new system will seize on the opportunity created by the ever increasing

wireless internet and communication market. The top five wireless communications

companies in the world stand at a $526 billion dollar market capitalization (Yahoo

Finance (2), 2006, TELECOM SERVICE PROVIDERS RANKED BY SALES). This

type of mobile communication is a trend which will keep increasing. By establishing a

link between the store and the customer in a manner such that the customer can interface

with the company at their choosing is innovative and will be a value added service. This

system will face some challenges in order for it to be fully implemented. These

challenges will be:

a) Culture change

b) Store infrastructure change


c) Legacy inventory and network system integrations

d) Customer recognition of the new system

As in most changes to a routine, the first challenge will be in establishing a

culture change within the Home Depot employees to demonstrate that this system will

benefit them by growing the company. The new system will require specific changes to

each store to accommodate this new policy of pre-buying inventory. The challenge here

is to set up traffic flow such that losses in customer satisfaction from the walk-in

shoppers who will are not utilizing the new system are mitigated. Legacy computer

system integration versus new programs is always a tough decision to make. The

challenge here is to determine the cost of integration when all things such as personnel

training are factored in; then compare that to the cost of an entirely new system which

will link inventory, sales, and ordering. Finally there is the task of ensuring that the

customer knows of this new service and its capabilities. Successful marketing is not an

easy endeavor and the task of informing a customer base of a new way of doing business

is the challenge.

I expect that this program will require substantial research into several disciplines

of finance, marketing, and system integration to name a few. The intent of the new

system is to be the first company in this market to link the customer with the product in a

manner that has not been attempted before.

Environmental Analysis

Objective:


“Continue to lead, change and grow in ways that will benefit our shareholders,

customers, associates, communities and suppliers for years to come.” (Home

Depot Inc. (1) [HDI], 2006, p. 2)

SWOT Analysis

Table 2.0 (Datamonitor Plc, 2004, p. 1)

Location of Factor

Type of Factor Favorable Unfavorable

Internal

Strengths (a) Exclusive brand and product

supplier agreements (b) Large, diverse and growing retailer (c) Business model (d) Distinctive product range (e) New Capitol Expenditures (Capex)

priorities

Weaknesses (a) New store productivity remains

weak (b) Rising expenses (c) Store layout and appearance

External

Opportunities (a) Growth in global sourcing (b) Payback from IT investment (c) North American growth potential

remains (d) International expansion

Threats (a) Competitive factors (b) Overlap between Home Depot

and Lowes (c) Industry slowdown

Internal Environment

Home Depot has shown steady strong growth over the past several years. Making

proactive changes in technology and making improvements in product, customer

relations and market share has kept the company the leader in the home improvement

industry. The company has also diversified through acquisitions of companies in

supporting markets of the home improvement industry. Home Depot uses its economy of

scale to its advantage in ways in which other companies are not able to accomplish. A

strategy employed by the company in expanding its market share is to “. . . open new


stores near the edge of market areas served by existing stores” (HDI, 2006, p. 4). This

approach is termed a cannibalization approach as it takes away existing store sales

revenue but the return “. . . increases customer satisfaction and [our] overall market share

by reducing delays in shopping. . .” (HDI, p. 4).

Home Depot has been keeping pace with internal information technology

advances as well. Beginning in 1996 when the company transitioned from the

proprietary VSAT network system, which relied on an outdated wireless platform, to a

land based network system. The company recognized “. . . that significant changes have

occurred in the costs and reliability of networks and network options” (Chain Store Age,

1996, p. 1). Moving forward into today’s market the company has started to implement

self checkout kiosks and increased centralized automated restocking to 20% of store

revenue.

The company’s focus on growth is represented in that fact that in 2005 they had “.

. . $3.9 billion of Capital Expenditures, allocated as follows: 66% for new stores, 10% for

store modernization, 9% for technology and 15% for other initiatives. In fiscal 2005, we

opened 179 new stores, including five relocations” (Home Depot Inc. (1) [HDI], 2006, p.

28).

External Environment

While Home Depot is the market leader in the home improvement industry it does

face rising competitive forces from Lowes. Lowes stands at almost half the market

capitalization of Home Depot but has been steadily increasing its market share (Yahoo

Finance [YF], 2006, para. 1). Lowes has an advantage in overlap between stores and


Home Depot stores where “55% of Lowes locations are within 5-miles of a Home Depot

store, while 42% of Home Depot’s stores are within 5-miles of Lowes figure which are

more acute in the top-25 markets” (Datamonitor Plc, 2004, p. 9). This represents a threat

to market share and store revenues.

As competition continues to grow in the US, Home Depot is looking outside of

the US borders to expand the company. “At the end of the 2005 fiscal year there were 54

stores operating in Mexico, 10 of which opened in 2005” (HDI, 2006, p. 4). Home Depot

also operates 137 stores in Canada and reached commercial leasing agreements in

Shanghai to support retail initiatives as a prelude to entering into the Chinese home

improvement market (HDI, p. 4). The potential for growth outside of the US is

represented by this segmentation graph of the worldwide home improvement market

share:

Figure 1.0 (Datamonitor Plc (2), 2006, p. 10)


Home Depot Customer Demographics

The demographic for the Home Depot customers are primarily home owners but

also include commercial building and services. Home Depot has led the industry as

being the most “. . . aggressive at testing new formats, from the upscale Expo Design

Center to Home Depot Landscape Supply, a garden center format that targets landscapers

and avid gardeners” (Howell, 2004, p. 28). This openness to innovation is what has kept

the company ahead of its competition. The company is recognizing the opportunities of

expanding further into the online retail market through its Home Depot Direct website

and by making budget allowances for new initiatives.


Home Depot’s Corporate Culture

The corporate culture of Home Depot is one which is receptive to

innovation. As described earlier in this report, the company is recognized as being the

most aggressive at trying innovative ideas in their store layouts and departments. In

reviewing their 2005 budget they allotted $3.9 billion or 4.7% of total revenues for

capitol expenditures, 25% of this were allocated to store renovation and new initiatives.

Opportunities

The two opportunities discussed in the initial proposal were the “. . . the ever

increasing wireless internet and communication market” (Museler, 2006, p. 3) and

increased presence in the commercial service and material supply market. The new

system will give consumers more choice in how they plan, organize, and order material

for home improvement projects and commercial building and renovations. Having a

distinctive process and greater flexibility for the customer will keep Home Depot as a

market leader and could create a customer loyalty in the commercial building and service

industry.

The company’s mission statement is listed as:

“The Home Depot is in the home improvement business and our goal is to provide

the highest level of service, the broadest selection of products and the most

competitive prices. We are a values-driven company and our eight core values

include the following:

• Excellent customer service

• Taking care of our people


• Giving back

• Doing the "right" thing

• Creating shareholder value

• Respect for all people

• Entrepreneurial spirit (Home Depot Inc. [HDI], 2006, para. 4)

The purpose of this new system is to provide a real time link between the

customer and the Home Depot store inventory. By creating this link the customer can

have an accurate depiction of the materials available to them so that budgeting and

planning are more efficient. In addition the company can realize an added benefit by

reducing the amount of shrink in its inventory valuations. Shrink is “. . . the difference

between the recorded amount of inventory and the physical inventory” (HDI, 2006, p.

31). This difference while not a large number does affect the valuation of inventory and

thus can have implication on the bottom line; this new system can be used as a tool to

correct inventory problems before they have a chance of becoming larger problems.

The methodology used to determine this system resulted from brainstorming

ideas. To begin the list of companies was reviewed for familiarity and perceived ease of

applying the proposed assignment. After selecting a company which had familiarity and

that could meet the assigned criteria a brainstorming session followed to develop ideas

which could be implemented. After reviewing some technical data the proposed concept

was chosen. After reviewing the concept another brainstorming session was held to

determine feasibility, implementation, and marketability. The concept was then fine

tuned into the proposal submitted in week one.


Technology Road Map

Phase 1: Preliminary Phase

The factors that are commonly addressed in the preliminary phase of roadmap

development are to determine satisfaction of essential conditions, committed leadership

and sponsorship from the company, and defining the scope and boundaries for the

technology roadmap. As discussed earlier in this report, corporate leadership is

supportive of innovation and implementing new technologies. Developing a scope of

work for this system is a difficult task but one which can be managed, the initial part of

the system implementation will be in establishing the interface between the customer and

the live inventory list. This is the essential part of the system and must be seamless in its

integration and user friendly to the customers. The initial boundaries will be that the

service will not be able to receive orders for the beginning stages of implementation.

This will allow time for the system to work through any unforeseen problem, allow for

customer feedback and recognition and for preparation of the follow-on stages of

implementation.

Phase 2: Development Phase

In setting about developing this new system the established boundaries and

corporate goals must be compared to the results on a frequent basis in order to maintain

focus and acceptability. In this phase the virtual link between live inventory and a

viewable customer interface must be established. Since this interface will be into a live

section of the company’s data network information technology (IT) security is

paramount. A review of the existing in house capabilities must be undertaken in order to

determine whether it is feasible to operate the new system with on hand technology and


personnel or if an outsourced solution is necessary. The next step will be to work with

wireless technology experts to determine how best to format the information to work with

this technology. Lastly a test market must be selected to implement the first installation.

Phase 3: Follow up Activity

The follow up activities are required because at the preliminary stages only a few

people are involved and therefore more people are required to validate the roadmap after

reviewing and making critical remarks. This phase primarily consist of 3 sub phases.

Critique and validate the roadmap:

During this phase the technology roadmap will be critiqued by a sampling of

different segments of the company, this group will be large as compared to the

preliminary phase. The recommendations with solid reasoning will be made for any

changes that are required in plan. The revision to the technology roadmap will take place

only when the stakeholders are in agreement with the implementation team.

Develop an implementation plan:

During this phase all the information is on the table. After an initial market has

been selected for installation a plan must be drawn to inform and train local personnel

and to begin a marketing and advertising campaign to make customers aware of the new

service.

Review and update:

The review and updates is an important part of the technology roadmap. Support

for the technology must be made available to customers and store personnel. During the

implementation phase it will be determined whether or not there was sufficient help or if

the resources allocated were too generous.


Project Segmentation

The initial phase of this project will be to provide a real time link between the

customer and the Home Depot store inventory. As stated earlier the initial boundaries

will be that the service will not be able to receive orders for the beginning stages of

implementation. The follow on stages will be in two parts; the first will be to allow

purchases through the system and have the ordered material marked and held in the store

to await pick up, the second part will be to segment the store into a true warehouse

section, with no customer foot traffic, so that order packages can be put together for pick

up by the customer.

The first part will require additional personnel training and equipment to identify

ordered material. This step should not be that large of a move from the initial system

implantation. The second stage will require significant buy in from corporate levels

because of the infrastructure changes and possible implications such a change could have

on the brand image. Again there will be personnel training issues and possibly material

handling equipment upgrades.

The initial concept of this project is categorized as breakthrough. While similar

systems are already functional in other industries they do not compare to the scale and

type being implemented in this market. This innovative way of linking customer and

business is one which, if successful, will be duplicated competitors in the industry. The

second part of the plan is a derivative of the initial part. It is the next logical step in the

process of allowing the transaction to occur. The last part of the plan will be the

compilation or platform. This last segment will tie the system into a cohesive functioning


part of the company and will be a platform business. Once in its established form this

segment can then seek to fine tune its product offering and possibly branch into other

segments of the company such as services and instruction.

Methodologies

Brainstorming will be utilized for its familiarity and ability to produce quick

results. According to a book on teaching techniques, brainstorming is a strong tool to use

and it is in “. . . the problem-solving area that brainstorming probably succeeds better

than any technique. . .” (Dunn & Kenneth, 1972, Chap. 3 para. 4). This technique can

also aid in critical thinking by generating differing points of view so that alternates

solutions can come to fruition. Another advantage of this methodology is that “. . .

individuals often react in traditional patterns and rarely have an innovative "brainstorm"

without the stimulus of multiple sounding boards” (Dunn & Kenneth, Chap. 3 para. 4).

The 5Ws and H technique because it also is a proven tool for idea generation and

can “. . . produce a wealth of information and valuable ideas” (Leith, 2004, mid-page).

This method simply uses questions to stimulate critical thinking, those questions are

What? Where? When? Who? Why? and How?

The Force field analysis technique will be utilized for its capability as a “. . .

specialized method of weighing pros and cons” (Mindtools, 2006, para. 1). As seen in

the following table, it represents a way to graphically represent a problem in a format

which is easier to visualize the problem at hand.

Figure 2.0 (Mindtools, 2006, para. 4)


Financial Project Plan Assessment

The premise of this new system is to connect the inventory system of each store to

an online kiosk style consumer website. Both residential and commercial customers can

shop, order, and pay for items and be assured that the items will be at the store upon

arrival. This system benefits the company in three distinct ways. First, it is an innovative

ordering process in this market. Customers will be able to plan work out in advance then

find out if materials required are available, the new system will suggest other store

locations for items which are out of stock. In the final implementation of the system

orders will be processes and packaged for pick up before the customer arrives. This will


serve as a strong attraction for contractors who are dependent on time frames for

completing projects. The third benefit of this system is that the company will have a

better defined picture of inventory in and out flow. Establishing delivery routes and

partnerships with distributors will be easier since the system will in effect be a real time

inventory database.

In the first stage of implementation the program will require training for in-store

personnel. This training will consist of educating the personnel in the:

• project concept

• stages of implementation

• levels of responsibilities

• technical support for in-store personnel

This training will place a burden on the human resources (HR) department, since

this program is expected to be a long term investment any new personnel hired associated

with this project should be either duel purpose, i.e. any HR personnel hired for this

training should also be able to be utilized for regular duty in the HR department, or they

should be placed in a role where after training store personnel they transition into

technical support roles for the system. The qualifications for the trainers in this system

will primarily be in information technology, communications and database management.

The best way to proceed with this project is to incorporate this project into the

Human Resources Department. The program will be a sub-department and will begin as

a small group and gradually add more personnel as the follow-on stages of the program

are implemented. While this will start in the HR department there will also need to be a

liaison to the IT department. The Home Depot has an established procedure for new


projects which is “. . . managed by an established executive committee, which approve [s]

and prioritize [s], various projects within the enterprise. . .” (Griffin, 2005, p. 2). In this

case the project will fall under the Information Technology Advisory Committee (ITAC);

the committee will review the proposal and has the authority to “. . . retain experts in the

field of information technology and information security to assist the Council with its

reviews (The Home Depot, Inc., 2006, p. 1).

The anticipated salary burden posed by this project will increase gradually as it is

implemented. For the purposes of this analysis the corporate headquarters location will

be used for comparative salary research and Monstor.com’s Salary Center will be used

for median salary amounts.

Training Center Manager

Salary + Bonus + Benefits estimate: $168,837

Initial number required: 1

Estimated Total Commitment: $168,837

Directs the design, planning, and implementation of corporate training

programs, policies, and procedures. Approves new training techniques and

suggests enhancements to existing training programs. Oversees relationship with

vendors to ensure appropriate employee participation in outside training

programs. Requires a bachelor's degree in area of specialty and at least 10 years of

experience in the field or in a related area. Familiar with a variety of the field's

concepts, practices, and procedures. Relies on extensive experience and judgment

to plan and accomplish goals. Performs a variety of tasks. Leads and directs the


work of others. A wide degree of creativity and latitude is expected. Typically

reports to top management.

Training Specialist III




Designs and conducts company training programs. Monitors and reports

the effectiveness of training on employees during the orientation period and for

career development. May be involved in initial plan design and existing plan

enhancements. Requires a bachelor's degree in a related area and 4-8 years of

experience in the field or in a related area. Familiar with a variety of the field's

concepts, practices, and procedures. Relies on experience and judgment to plan

and accomplish goals. Performs a variety of complicated tasks. May lead and

direct the work of others. May report directly to an executive or head of a

unit/department. A wide degree of creativity and latitude is expected

Training Specialist I




Conducts company training programs. Monitors and reports the

effectiveness of training on employees during the orientation period and for career

development. Requires a bachelor's degree in a related area and 0-3 years of


experience in the field or in a related area. Has knowledge of commonly-used

concepts, practices, and procedures within a particular field. Relies on instructions

and pre-established guidelines to perform the functions of the job. Works under

immediate supervision. Primary job functions do not typically require exercising

independent judgment. Typically reports to a manager.

Database Analyst IV



Estimated Total Salary Commitment: $370,533

Reviews, evaluates, designs, implements and maintains company

database[s]. Identifies data sources, constructs data decomposition diagrams,

provides data flow diagrams and documents the process. Writes codes for

database access, modifications, and constructions including stored procedures.

Requires a bachelor's degree in area of specialty and 6-8 years of experience in

the field or in a related area. Familiar with a variety of the field's concepts,

practices, and procedures. Relies on extensive experience and judgment to plan

and accomplish goals. Performs a variety of tasks. Leads and directs the work of

others. A wide degree of creativity and latitude is expected. Typically reports to a

manager or head of a unit/department.

Phase Two Project Personnel Requirements


The following personnel will be hired in the Phase Two part of this program. The

two positions required are Material Handler and Material Handler Supervisor. It is

estimated that there will be 10 Materials Handlers and two Materials Handler Supervisors

per store.

Materials Handler Supervisor


Supervises and coordinates the work of employees who load and unload

material within a warehouse or storage facility. Oversees the utilization of hand

trucks, forklifts, hoists, conveyors, or other handling equipment to move material

to and from aircraft, trucks or trains and within the storage facility. Prepares work

schedules, assigns work, and oversees the work product. Ensures procedures are

according to specifications. Requires a high school diploma and at least 5 years of

experience in the field or in a related area. Has knowledge of a variety of practices

and procedures within a particular field. Relies on experience and judgment to

plan and accomplish goals. Performs a variety of complicated tasks. Leads and

directs the work of others. A wide degree of creativity and latitude is expected.

Typically reports to a manager.

Materials Handler III


Loads and unloads material within a warehouse or storage facility. Utilizes

hand trucks, forklifts, hoists, conveyors, or other handling equipment to move

material to and from aircraft, trucks or trains and within the storage facility.


Requires a high school diploma with 2-5 years of experience in the field or in a

related area. Has knowledge of standard practices and procedures within a

particular field. Relies on limited experience and judgment to plan and

accomplish goals. Performs a variety of tasks. Works under general supervision;

typically reports to a supervisor or manager. A certain degree of creativity and

latitude is required.

The program will have a performance bonus system in place to maintain moral

and keep key personnel retention rates high. The system will be metric based to include

performance reviews from students/employees as well as supervisors. In addition the

metric will include the technical support data when the system is brought on line. This

last part will be a real world feedback check of the training program and training.

The Home Depot has an existing policy of forward planning which “. . . established

IT and functional accountability, [and] a formal and consistent five-year total-cost-of-

ownership analysis. . .” (Griffin, 2005, p. 2). In beginning to analyze this new program

the following risks are expected:

• Technical – problems integrating web access with existing inventory

databases

• People – training the existing workforce and new personnel in an efficient

and timely manner

• Cultural – acceptance of the new system within the Home Depot culture

and with the customer base


Table 3.0

Risk Chance of Occurrence Mitigation Strategy

Technical 4

• Have mirror databases running at the technical support center in order to model problems which arise.

• Enact a trouble call system with definitive completion dates.

People 2

• Focus new hiring on technologically competent personnel

• Offer wage incentives to existing employees to complete and become proficient in the new system

Cultural 3

• Begin a knowledge sharing campaign explaining the phases of the program

• Encourage comments and acknowledge the participation in the process with small incentives

A Gantt chart representing all projects, all tasks, and all resources assigned to

each task is attached in a separate document. In order to best represent the size and scope

of this project it was decided to not include overview or detailed reports in this report.

The Project is scheduled to run for 235 days from commencement to completion.

Financial Projections and Considerations


The US construction industry “. . . accounts for just under 5% of GDP . . .” (The

Economist Intelligence Unit Ltd., 2006, p. 49), in 2003 this represented “. . . a seasonally

adjusted annual rate of U.S. $ 933.2 billion . . .” (International Construction, 2004,

Abstract). In smaller terms, the construction industry in this country is comprised of

thousands of small corporations among the giant construction firms such as Toll

Brothers. In a letter published by the Associated General Contractors of America it states

that:

“Construction is a low-margin industry. Internal Revenue Service data for 2002

shows that the 649,000 corporations in construction had net income (less deficit)

of $28.4 billion, or 2.6% of total receipts of $1.1 trillion.” (Simonson, 2006, para.

7)

This project seeks to take a segment of this market. As noted small business

contractors function under small margins and as such rely on work volume in order to

maintain profitable status. This combination leaves almost no room for delays which fall

outside weather related obstacles. The ability to have a supply chain partner with the

volume purchasing power of Home Depot coupled with no downtime in sorting materials

in the store should be viewed as value added to small business contractors. Using the

revenue data from 2002 of $1.1 trillion dollars in contractor receipts this project will set a

goal of five percent market share in contractor receipts or $55 billion dollars within five

years. The following represents the five year projection of the salaries and store

implementations, also noted in this table are the additions of new personnel (Material

Handler III and Material Handler Supervisor) and an assumed annual inflation rate of

3.5%.


Table 4.0

Year Number Yearly project Salaries Number of Stores Implimented 1 $4,013,473 5 2 $21,245,365 30 3 $41,928,942 35 4 $66,185,015 40 5 $94,138,621 45

Total Stores: 155 The next table illustrates the projected revenues the project will generate.

Assumptions made are based on GDP projections and the assumed five percent

construction industry share of the GDP figure.

Table 5.0

Year US GDP

Projection in $ Billions

Five Percent Construction Industry Rate

in $ billions

Projected Home Depot

Share in $ billions

Targeted Share

2006 $12,083 $604.13 $3.02 0.50% 2007 $12,506 $625.32 $4.69 0.75% 2008 $12,945 $647.25 $9.71 1.50% 2009 $13,399 $669.95 $16.75 2.50% 2010 $13,869 $693.45 $24.27 3.50%

Assuming a discounted rate of 4.3% (The Home Depot Inc (1), 2006, p. 47) the

Net Present Value of the project is $49.4 billion dollars as represented in the following

table.

Table 6.0


Projected Home Depot Share Yearly project Salaries Cash Flow

$3,020,650,234 ($4,013,473) $3,016,636,761 $4,689,893,836 ($21,245,365) $4,668,648,471 $9,708,772,387 ($41,928,942) $9,666,843,445 $16,748,826,407 ($66,185,015) $16,682,641,392 $24,270,779,749 ($94,138,621) $24,176,641,129

Net Present Value $49,388,069,988

Project Analysis and Review

The scope and resources utilized by this project are significant. The capitol

investment required is nominal when compared to the overall operations of the

corporation but is still sizeable. Besides the inherent monetary risk associated with this

kind of project there is also an intangible risk in the possible harm to the Home Depot

brand image. Since its inception the Home Depot has strived to keep its brand image as

one of partnering with the do-it-yourself (DIY) home owner in keeping with their

trademark slogan “You can do it, we can help”™. This new venture moves slightly away

from that image into the commercial construction industry and large project DIY home

owner. The assumptions made in calculating the financial data for this project are worth

reviewing throughout the project implementation based on the risks posed to the

corporation. To begin it was assumed that inflation would be steady state throughout this

projection period. This assumption is probably a safe one based on historical data.

The next assumption was two fold based on research of the construction industry.

Historical data suggests that the construction industry accounts for approximately five

percent of the US Gross Domestic Product (GDP). Again, this assumption has historical

backing and is probably a safe assumption. Since there was no concrete data regarding

residential versus commercial construction the entire industry figure was used in the


calculation. This assumption could prove to be significantly higher than real world

returns. The goal set for the project was based on this assumption which could result in

cash flow projections that may or may not be accurate.

Home Depot Virtual Shopping Extension Program Global Deployment

Introduction

The new initiative launched by Home Depot in the form of the Virtual Shopping

Extension Program (VSEP) will bring Home Depot into the global economy in a manner

which has not been seen before. This program will connect the customer with the

company through the inventory system of each store with an online kiosk style consumer

website. This system is designed for use by either residential or commercial customers;

where they can shop, order, and pay for items and be assured that the items will be

packaged and waiting at the store upon arrival.

Marketing Challenges

The road to deploying VSEP to a global market is faced with many challenges.

The first and perhaps greatest challenge is of establishing brand recognition is target

markets. Whether the market is competitive, closed or open there is still a challenge of

associating Home Depot with what consumers need. As an example, IKEA entered the

US market in a conservative approach which focused in major metropolitan areas. This

initial strategy relied upon their products strength in being “. . . flexible, adaptable home

furnishings, scalable both to larger homes and smaller dwellings” (IKEA, 2006, para. 4).

This strategy paid off when it attracted city apartment as well as close suburban house


dwellers. Home Depot can mimic this approach by targeting areas which are

experiencing strong housing growth or have the potential for strong growth.

A second challenge facing this deployment lies in establishing the same do-it-

yourself (DIY) market which exists in the US. This is the backbone of the franchise and

must be preserved if the deployment is to be successful. Marketing to foreign cultures is

“. . . often hindered by a lack of knowledge about the target groups. Further, a number of

U.S. cultural perceptions cause many marketers to develop inaccurate perceptions of the

populations they’re cultivating, although some of these beliefs may sometimes be true”

(Lee, 2004, p.34). This pitfall can be overcome through due diligence in researching the

target market and associated demographic.

Another pitfall presented by foreign markets is the practice of negotiating for

products and services. In the US the consumer is accustomed to paying the asking price,

in many foreign countries this is not the norm. This practice “. . . is not simply a way of

getting a better price. It’s also a way to get to know those with whom one is doing

business” (Lee, p.35). Using this as a basis with which to begin the integration into the

market is an important concept to understand. Strategies to conform or appear to

conform to this practice can be as simple as “. . . giving a habitual negotiator a free

sample. . .” (Lee, p.35). By forming a bond or understanding between the customer and

the company two things are accomplished. First, the customer is put at ease with regards

to their cultural preference to negotiate price and second the company establishes

favorable brand recognition with the local consumer.

Marketing Deployment – Targeting with the Right Media


This deployment must begin with targeted marketing in order to establish an

initial buzz or excitement about the coming store opening. The communication company

Verizon uses “. . . in-depth market research, focus groups and surveys” (Verizon, 2006,

para. 2) as tools for their multicultural marketing teams. This approach combines the

analytical remote research with face to face meeting research to better define and

triangulate the results of the data. Other tools available are print, radio, television and

web advertising. Market research will of course be a vital part of this exercise but it will

only be used to guide the process along and to shape the marketing efforts as they

progress. In one of the target markets of China, determined previously, the culture is

different to market to in terms of the media utilized. In the US there is a strong

commuter culture which places customers in cars and public transportation for set periods

of time. This is where radio and billboard advertisements can have tremendous affect. In

China this is not the case, mass transit is beginning to expand rapidly and bicycles and

pedestrian traffic are the norm (Simmons-Boardman Publishing Corporation [SBPC],

2002). Finding a medium which will efficiently communicate the essence of the brand to

the consumer is the goal of this stage of the deployment; after market research has been

accomplished and identifies a target the mediums available will be chosen. Billboard

technology has entered the modern age with digital projections or images which can also

be interactive with passersby. This type of media should be the focus of the advertising

campaign in this market. It has the advantage of being able to demonstrate to the

consumer the product and service of what the brand is and does in the time frame

available. The digital billboard also has the advantage of being able to project television


type commercials to an audience which may not have large segment that owns

televisions.

Foreign cultures also have a commonality which is quite different from the US

market, the pace of life in business and recreation is decidedly slower. In the US we

compress our work and recreation into time allotments whereas in other countries work is

not necessarily a means to an end. Life in these cultures largely focuses on the nuclear

family and intersperses leisure with business in the form of mid-day rest or siesta. In

order to market to these cultures this behavior must be taken into account. The marketing

approach of interjecting the DIY culture into the foreign market should embrace this type

of behavior and adjust the advertising to include family and products which relate to the

lifestyles targeted in the market research.

There are additional risks associated with this venture. In beginning the exercise

of entering foreign markets the main market or home base should not be left to stagnate

in its same business model. The characteristics which made Home Depot a success,

finding a niche DIY market and exploiting it into a multibillion dollar corporation should

not be forgotten. DIY innovations are ongoing and there should be a clear delineation

between the home based or US market and the foreign market within the organizational

structure. By keeping each business unit separate they can each focus on strengthening

their individual markets and not have the added burdens of close corporate interaction. It

would be suggested that the organizational structure be changed into a matrix type

structure to better facilitate this venture. An example can be seen in the following table:

Table 7.0


The product divisions would be represented by hardware, home and garden,

installation services and so on. This type of structure could tie together each specialty of

the operation while giving the individual business unit freedom to operate in an

autonomous manner.

Global Resource Management

There are several choices which must be considered when planning a venture with

the depth and size of this one. In the US market, Home Depot has an established supply

chain, marketing, and infrastructure organization. In seeking to expand into global

markets the initial choice is whether to utilize this established network to gain initial

momentum or to start from square one in each individual target market. The advantage

of starting from scratch for the overall organization is that the financial risk is

considerable lower with little initial capital investment, the disadvantage is that the brand


image could be harmed should the venture fail due to lack of funding. The advantage of

utilizing the existing networks is twofold. First, the initial capital is in place and the

venture can concentrate on the task of establishing the franchise rather than adding the

burden of raising capital as well. The second advantage is in the experience gained

through already achieving the networks. It is suggested that the existing networks of

supply chain, human resources and infrastructure services be utilized in a time limited

basis. Setting a time based goal rather than a financial one is a more incentive based way

of setting up this type of operation. If the goal of ending the services of the existing

networks were financial the impetuous to excel could be open ended. By establishing a

reasonable time frame to success the business unit is forced to operate in a manner which

will provide the quickest return and should stimulate innovative solutions to problems

which may occur.

Conclusion

The Home Depot Virtual Shopping Extension Program Global Deployment will

be a complex, time and resource consuming exercise. The rewards which its completion

should return will place Home Depot as the world leader in the home and commercial

building markets. This system, when implemented, will elevate the brand by making it

distinctly different from its competitors while simultaneously providing a competitive

advantage.


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Documents

Home Depot VSEP