I. Current Situation

A. Current Performance

The company continued to expand and topped many company records in 2005 including earnings per share, operating margin and net earnings records. They retained the spot as the world’s largest home improvement retailer and the second largest retailer in the United States behind Wal-Mart.

Opened more than 900 stores from 2000-2005 Sales increased from $45.7 billion in 2000 to $81.5 billion in 2005 Earnings per share more than doubled in the same time Employed 345,000 associates Average sales per customer ticket reached 57.98, an all-time high 1,832 Home Depot stores (This includes all 50 states and the District of

Columbia, Puerto Rico, and the Virgin Islands, plus 143 stores in Canada and 57 in Mexico. The average Home Depot store had approximately 105,000 square feet of indoor selling space with an additional 23,000 square feet of outside garden center space.)

Went from 0 to number 3 in the core appliance market share (They began to offer many Home appliances.)

B. Strategic Posture

1. Mission:

(The mission of Home Depot is clearly stated in its mission statement but is also implied by its strong business code of conduct and ethics and also their performance as a company.)

The Board of Directors (the "Board") of The Home Depot, Inc. (the "Company") is committed to maximizing long term shareholder value while supporting management in the business and operations of the Company, observing the highest ethical standards and adhering to the laws of the jurisdictions within which the Company operates.

Strong Business Code of Conduct and Ethics (Stated in short that acting with integrity and doing the right thing are the driving forces behind The Home Depot’s extraordinary success. That they are committed to conducting its business in an ethical manner and all that they do must be consistent with the values of the company. They believe in doing the right thing, having respect for all people building strong relationships, taking care of our people, giving back, providing excellent customer service, encouraging entrepreneurial spirit and providing strong shareholder returns.)

2. Objectives:

(There are many objectives that the company has as you can see but these objectives are strongly supported by the company’s strategies which will be verbalized in the next section.)

Enhancing the Core, extending the business and expanding the market. Maintain and grow its leadership position in the home improvement retail

worldwide. Become the nation’s largest diversified wholesale distributor Become number one in services (currently have more than 11,000

installations per day and expect to continue their growth through 2010) Become the largest home improvement retailer in both Canada and Mexico. Increase direct-to-consumer channels Compounded annual sales growth of 9%-12% Compounded earnings per share growth of 10%-14% Open 400-500 new stores (which will create an additional 40-55 million

square feet of new selling space.) Increase operation margin Have a cumulative operating cash flow of $50 billion Cumulative capital expenditures of $17-20 billion Grow Home Depot Supply sales Increase efficiency Increase number of customers applying for credit

3. Strategies:

Introduced self checkout, Back End Automation and Re-engineering and centralized automated replenishment. (These advancements in automation helped to successfully improve the efficiency of Home Depot’s operations.)

Acquired 21 companies (These companies were acquired in an attempt to increase the amount of installations that Home Depot could perform. One of the major companies that Home Depot purchased was Hughes Supply.)

Remain prepared for weather phenomenon such as hurricane Katrina. (Two days prior to Katrina making landfall maintenance teams battened down stores in the projected path of the hurricane and electrical generators and hundreds of extra workers were moved into place.)

Served both the Do-It-Yourself (DIY) and Do-It-For-Me (DIFM) customer. Better serve the professional customer. (To do so, Home Depot acquired the

previously stated 21 stores while the Home Depot Supply distributed products and sold installation services primarily to professional business contractors, businesses and municipalities. 1. They focused on three main areas. Supplying maintenance, repair and operating products to multifamily housing, hospitality and lodging facilities, 2. Builder provided products and arranged installation services for production homebuilders and 3. Providing specialty hardware, tools, and materials to construction contractors.)

Modernize the stores while updating their product lines. (This strategy is in place to meet the objective of Enhancing the Core of the company. In order to enhance the company it must be able to adjust to changing customer needs.)

Expand into multiple channels. (The objective to extend the business is met by expanding to channels such as homedpot.com and various catalogs and also by selling new products and services.)

Expand into new markets. (The company plans on expanding into new markets with new products to better serve existing customers and to attract new ones.)

Use technology to increase efficiency examples in clued computerized point of sale system, electronic bar code scanning system, and a UNIX server. (In so doing the associates will be able to spend more time serving and focusing on the customer. It will also help with the store-based inventory management, rapid order replenishment and item movement information.)

Become Sustainable. ( In order to achieve sustainability Home Depot plans on selling products that are manufactured, packaged, and labeled in a responsible manner, that take the environment into consideration and that provide greater value to its customers.)

Differentiate itself from its competitors through customer service. Employ only highly qualified and helpful employees. (This along with helpful

in-store displays is done in an attempt to cultivate customers.) Demonstrate methods and techniques of performing a job safely and

efficiently to the customer. (Instead of just recommending appropriate products, tools, and materials employees are urged to go the extra-mile and provide tips.)

Offered credit programs and reduced charge card approval process time. (The approval process time had been reduced to less than 30 seconds to increase the number of customers applying for credit. In 2005 approximately 4 million new Home Depot credit accounts were opened, bringing the total number of Home Depot account holders to about 16 million. The credit card sales accounted for around 26% of store sales.)

4. Policies:

Main Policies

Improve everything we touch (The company adopted this slogan and policy after Nardelli became CEO and he stated that you can improve everything you touch whether you’re a lot attendant, store manager, or chairman of the company.)

Superb Service Be a good corporate citizen Behave Ethically Act with integrity

Prior to Bob Nardelli in December of 2005

Decentralized management and decision making. Entrepreneurial innovation and risk taking. High levels of employee commitment and enthusiasm. Bond with customers and the communities

Orange-blooded culture which emphasized individuality, informality, nonconformity, growth and pride. (This allowed for ideas from employees to be heard by upper management because of the ease of information communication. Instead of conforming to other organizations Home Depot employed a bottom-to-top type of training sequence in which they trained the carryout people first because they believed that the last person to come in contact with the customer makes a huge impact and they wanted the contact to be positive.)

(These policies were formed by the founders of the company. Some of the policies prior to Nardelli are still applied by the company but he changed it to a more centralized, military standard type of company. He did this because he believed it was partially responsible for the firm’s stagnation in sales growth.)

After Bob Nadelli

Centralized management Organize the company Emphasis on military efficiency Hire veterans Disciplined manager corps (This is done in an attempt to produce managers

that follow orders, operate in high-pressure environments, and execute with high standards.

(The new policies prohibited the constant flow of ideas and suggestions from employees in the organization and replaced it with major decisions and goals that flow down from top management. Some people used to the old way of doing things felt a “culture of fear” because instead of just using their experience to sell at their maximum the company set forth exact goals for each store. Customer satisfaction fell off in 2005 and some say it was because Nardelli tried to measure good customer service instead of inspiring it. In 2006 the customer satisfaction was improving.)

II. Strategic Managers

A. Board of Directors

1. The following is a list of Home Depot’s Board of Directors.

Robert Nardelli- Chairman & CEO The Home Depot, since 2000. Previously was President & CEO of GE. Owns 5.3 million shares of stock.

John L. Clendenin- served as a director since 1996, retired Chairman, President & CEO BellSouth Corp. Member of four other others, including Equifax, Kroger. Chairs the Audit Cmte. Owns 38,832 shares.

Gregory D. Brenneman – served as a director since 2000. Chairman & CEO of Burger King. Also served as CEO of Continental Airlines. Owns 33,500 shares.

Claudio X. González – served since 2001. Former Chairman & CEO Kimberly-Clark de Mexico, S.A. de C.V. Also member of boards of GE, Kellogg’s, Kimberly –Clark and Investment CO of America. Owns 64,450 shares.

David H. Batchelder- Principal Relational Investors LLC. No further info. Kenneth G. Langone- Co-founder and served a director since 1978.

Chairman, CEO & President Invemed Associates, Inc (banking & brokerage). Also board member of ChoicePoint, Yum and Unifi. Chairs Nominating an Corp Governance Cmte. Owns 16.5M shares.

Angelo R. Mozilo - Served as since 2006. Chairman & CEO Countrywide Financial Corporation. Owns 800 shares.

Thomas J. Ridge- Served since 2005. Former Secretary of Homeland Security & Governor of Pennsylvania. Also a board member of Exelon Corp. Owns no shares.

Laban P. Jackson, Jr. – Chairman Clear Creek Properties, Inc. Served since 2004. Chair of Clear Creak Properties. Board member of JP Morgan Chase CO and IPIX. Owns 7400 shares.

Lawrence R. Johnston- Served since 2004. Former Chairman, CEO & President Albertson’s, Inc, and Pres and CEO of GE appliances. Owns 5000 shares.

Helen P. Johnson-Leipold -Chairman & CEO Johnson Outdoors, Inc. No info.

Bonnie G. Hill- Served since 1999. President B. Hill Enterprises, LLC- a corp governance specialist and also CEO of Icon Blue Inc, a brand marketing CO, and Times Mirror Foundation CO. Member of five other boards- Albertsons, Hershey and Yum. Chairs Leadership Development & Compensation Cmte. Owns 22,370 shares.

Milledge A. Hart, III- Served since 1978. Chairman of DocuCorp. Chairs the board‘s Info & Tech Advisory Cmte. Owns 3.558M shares.

2. A substantial majority of the Directors on the Board (nine of the eleven) are independent and each Director serving on the Audit, Leadership Development and Compensation, and Nominating and Corporate Governance Committees is independent.

a. Home Depot’s stock publicly traded stock. Nardelli’s stock included restricted stock, deferred, and nonqualified options. Restricted stock of a company that is not fully transferable until certain conditions have been met. Conditions are based on hitting economic targets for the year. Upon satisfaction of those conditions, the stock becomes transferable by the person holding the award.

Preferred stock / shares or preferreds, is a special equity security that has properties of both equity and a debt instrument. There are several directors that have international experience which suits the company well for its American Ops and expansion to Asia. Each non management director receives an annual retainer of $130,000, the majority in deferred stock, a portion in cash or stock, and the remainder in non-qualified stock.

b. During the 2006 AN meeting, the Board was strongly accused of lacking independence and indeed did not participate in person. The board contracted the audit capacity of KPMG LLP, an independent registered public accounting firm and received a passing and fit grade. The board followed Nardelli’s lead to allow him to lead the meeting cycle alone. It was overwhelmingly rejected by the shareholders and Nardelli pledged to return to the previously accepted format in 2007. There is no mention of the board’s environmental evaluation capacity other than a pledge to comply with environmental rules.

B. Top Management

1. The case and the 2006 Annual Report list the following as the managers of Home Depot. The majority had greater than three years with the corporation.

a. Management experience came from diverse external backgrounds such as; R. Adams GM’s senior level advertising, F. Blake’s GE R&D / Production and governmental post as Sec of Energy, T. Crow’s merchandising with K-Mart, J. DeAngelo’s customer services for tools (Stanley) and GE financial section, R. DeRodes high tech work with Delta Airlines and customer interface support with the Sabre Reservation systems, M. Ellison with corporate / retail security from Target, C. Menear’s hardware merchandising and geographical savvy, C. Salvidar’s experience in a broad range of Mexican business operations, C. Tom’es experience in the consumer packaging.

b. The internal experience base has been selected from medium to long term managers such as; B. Merino has ten years w/ HD, has merchandising, Expo Design Center roles and regional mgmt roles, P. Raines had six years of experience in store Ops and Labor relations, Ms. Tom’e has 10 years of HD financial management positions and Ms. Vaneschen has ten years of HD operational and senior management experience as the President of HD Canada and recently appointed Asian President.

c. Top management’s has established a strategic approach to corporate management. Nardelli has stated that they will enhance the core, extend the base and expand the market, his 3E’s (enhancements). That meant they would continually modernize their stores, update their product lines, and increase sales to the current customer base. They also intended to expand into other

channels such as online, catalogs and with new products such as flooring and home improvements and mishap cleanup and greater professional market involvement. They have designed a five year expansion plan to add 400-500 stores, to include greater exposure in the national and international markets of Canada, Mexico and on the Asian mainland (Shanghai). Currently nearly 10% of stores are international. Existing market saturation and slowing industry growth projections prompted Wall Street to question if their projections matched likely real near term prospects.

d. Nardelli was empowered to bring on like minded upper level managers to match his vision. Historically, it had often hired outside talent for senior positions. Therefore currently, there are few with more than three years on board experience. There is no indication to suggest the present, albeit current (new) managers, disagreed with Nardelli, or managed to convince him or the Directors that his direction wasn’t going to succeed. Tellingly, 98% of the senior management left the company from 2001 – 2006. The present management has completely supplanted the former company / store operations style by 180 degree shift on preferred behavior characteristics. It shifted from an all professionally trained/experience store labor pool to a majority of part-timers brought on to reduce employee costs and organizational strength with orders to run in a ‘military manner’.

e. Home Depot’s future as the industry leader was openly questioned by Wall Street after the strong negative reaction to the nearly 100% executive turnover. The question whether the ‘Orange Blooded’ culture, which customers loved, could survive and drive profitability. The street also questioned corporate strategy when its best and only true retail expert departed in 2006. Starkly, HD had fallen to last place in the sector’s customer satisfaction rating scale. On Nardelli’s direction, it also withdrew from the retail industry standard of reporting ‘same store sales’ or those opened at least a year- also drawing serious questions as to its full and open reporting criteria. Nardelli’s pay and compensation raised analysis concerns when Fortune called him and others out in an article about excesses in executive compensation.

f. No information revealed the amount of executive stock held, with the exception of Nardelli. Simplified compensation rules are as follows. Top executives are compensated in three way, base salary, annual bonus and long term incentives. Base is determined by total compensation, scope of responsibilities, years of experience, and the competitive marketplace. Merit increases were base on an individual’s performance over the year and potential for development. All executive took part in the Management Incentive Plan (MIP). It is cash based bonus plan for performance for reaching tactical goal set

in the beginning of the year. Executives stock ownership guidelines, were required to hold share of common stock over the only term to keep their attention off the short perspective. Multiples were X6 for CEO’s, X4 for Exec VP’s and X3 for Division Presidents and Sr VP’s. The X variable is based on another internal employee’s pay versus ‘industry standard’. Nardelli’s pay in 2005 was $2.225M, with a bonus of $7M, 380,000 shares of restricted stock 175,000 of deferred, and 90,000 nonqualified options. It was also noted Nardelli received what was noted as a ‘large amount of loan forgiveness’ and ‘tax gross-ups’ regarding those forgiven funds. Pay was based on a 20.4% earnings and 11.5% net share growth for the year. No other executive pay was revealed in the case or in the ‘06 AN Rpt.

g. During FY 2006, six uncertified, class actions were filed by current and former shareholders against the Company and current and former officers and directors in the U.S. District Courts, alleging misrepresentations in violation of the Securities Exchange Act and alleging breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, and unjust enrichment in connection with the Company’s return-to-vendor, stock option, and compensation practices. Stock holders also were angered by his heavy handed manner during stockholder meetings. Therefore, they were driving towards changing corporate guidelines of majority versus plurality voting rules to better address stockholder rights and desired direction. There was no conclusion to the cases but Nardelli did agree to reverse some of his positions regarding interactions with the share holders, board operations and return to the customer centered culture.

h. The company has longed been known for its good corporate citizenship. It has supplied disaster relief supplies during Katrina, employee volunteers for Habitat for Humanity, other non-profits and outreach organizations- to its neighbors and employees in need. The Depot management’s CRM includes principals that; sell products are sourced and manufactured sustainably and environmentally compliant. It pledges to train it employees to minimize ecological impacts and encourages its customers to increase their environmentalism.

2. The annual report identifies the following as management for Home Depot. It also lists a separate listing of what it calls the Home Depot Leaders.

ROGER W. ADAMS, (3+yr) age 50, Sr VP & Chief Marketing Officer since Oct 2006. From Feb 2005 through Oct 2006, he served as the Company’s Sr VP – Marketing. Mr. Adams previously served as Exec Director of Corp Advertising, Marketing and CRM of General Motors Corp (GM) from June

2004 to Jan 2005. From March 1996 to June 2004, he served as General Manager of GM’s Buick, Pontiac and GMC Division.

FRANCIS S. BLAKE, (3+yr) age 57, has been Chairman and CEO since Jan 2007. From Mar 2002 through Jan 2007, he served as the Company’s Exec VP –BD and Corp Ops. He was formerly the Deputy Secretary of Energy from June 2001 until March 2002. From June 2000 until May 2001, he was a Sr VP at General Electric and was VP of GE Power Systems from February 1996 until July 2000. Mr. Blake serves as a director of The Southern Company.

TIMOTHY M. CROW, (3+yr) age 51, has been Exec VP – HR since Feb 2007. From May 2002 to Feb 2007, he served as Sr VP, Organization, Talent and Performance Systems. Mr. Crow previously served as Sr VP – HR of K-Mart Corp, a mass merchandising company, from 1999 through May 2002.

JOSEPH J. DeANGELO, (<3yr) age 45, has been Exec VP and COO since Jan 2007. From Aug 2005 through Dec 2006, he served as the Company’s Exec VP – Home Depot Supply. From Jan 2005 through Aug 2005, he served as Sr VP – Home Depot Supply, Pro Business and Tool Rental, and from Apr 2004 through Jan 2005, he served as Sr VP – Pro Business and Tool Rental. Mr. DeAngelo previously served as Exec VP of The Stanley Works, a tool mfgr’ing company, from Apr 2003 through Apr 2004. From 1986 until Apr 2003, Mr. DeAngelo held various positions with GE. His final position with GE was as President and CEO of GE TIP/Modular Space, a division of GE Capital.

ROBERT P. DeRODES, (3+yr) age 56, has been Exec VP – CIO since Feb 2002. He previously served as President and CEO of Delta Technology, Inc. and CIO for Delta Air Lines, Inc. from Sep 1999 until Feb 2002. From Feb 1995 to Sep 1999, he served as Sr Technology Officer at Citibank for the Card Products Group. From Feb 1993 to Feb 1995, he was President of Sabre Development Services for the Sabre Group Holdings, Inc., a subsidiary of American Airlines, Inc.

MARVIN R. ELLISON, (3+yr) age 42, has been President – Northern Division since Jan 2006. From August 2005 through Jan 2006, he served as Sr VP – Logistics and from Oct 2004 through Aug 2005 he served as VP – Logistics. From June 2002 through Oct 2004, he served as VP – Loss Prevention. From 1987 until June 2002, Mr. Ellison held various management and executive level positions with Target Corp, a general merchandise retailer. His final position with Target was Director, Assets Protection.

CRAIG A. MENEAR, (<3yr) age 49, has been Sr VP – Merchandising since Oct 2006. From Aug 2003 through Oct 2006, he has served as Sr VP – Merchandising, for the Hardlines Corp. From 1997 through August 2003, Mr. Menear served in various mgmt and VP level positions in the Company’s Merchandising department, including Merchandising VP of Hardware, Merchandising VP of the Southwest Division, and Divisional Merchandise Mgr of the Southwest Division.

BRUCE A. MERINO, (10+yr) age 53, has been President – Western Division since May 2000 and President, EXPO Design Center since October 2005. From October 1996 through May 2000, he served as Merchandising VP.

PAUL RAINES, (6+yr) age 42, has been President – Southern Division since February 2005. Prior to he served as Regional VP – Florida from Apr 2003 through Jan 2005. From Jan 2002 through Apr 2003, Mr. Raines served as VP – Store Ops, and from Jan 2000 through Jan 2002, Mr. Raines served as Director of Labor Mgmt.

RICARDO SALVIDAR, (5+yr) age 54, has been President – Mexico since 2001. From 1980 to 2001, Mr. Salvidar held various management and executive level positions with Grupo Alfa, a Mexican conglomerate. His final position with Grupo Alfa was President and CEO of Total Home.

JAMES C. SNYDER, JR., (3+yr) age 43, has been VP – Secretary and Acting General Counsel since Feb 2007. From Mar 2006 to Feb 2007, Mr. Snyder served as VP – Legal, Risk Mgmt. From Mar 2004 to Mar 2006 Mr. Snyder served as VP – Legal. Prior thereto Mr. Snyder served as Director, Legal from Nov 2002 to Mar 2004. Mr. Snyder joined the Company in Mar 2001 as Corp Counsel.

CAROL B. TOM´E, (10yr) age 50, has been CFO since May 2001 and Exec VP – Corp Services since Jan 2007. Prior thereto Ms. Tom´e served as Sr VP – Finance and Accounting/Treasurer from Feb 2000 through May 2001 and as VP and Treasurer from 1995 through Feb 2000. From 1992 until 1995, when she joined the Company, Ms. Tom´e was VP and Treasurer of Riverwood International Corp, a provider of paperboard packaging. Ms. Tom´e serves as a director of United Parcel Service (UPS), Inc.

ANNETTE M. VERSCHUREN, (10yr) age 50, has been President, The Home Depot Canada since Mar 1996 and President, The Home Depot Asia since September 2006. From Feb 2003 through Oct 2005, she also served as President, EXPO Design Center.

3. The following is an additional listing taken from the Annual Report but not clarified in the text, consisting of Ms. Diane S. Dayhoff- Sr VP Investor Relations and Mr. Brad Shaw- Sr VP Corp Comm & External Affairs. No historical or biographical information was published.

III. External Environment

A. Natural Physical Environment: Sustainability Issues

The elimination of unnecessary packaging, along with recycling, has helped Home Depot in their bid for sustainability. They have also worked with training employees and customers to educate them on the importance of conservation and resource efficiency as well minimizing environmental health issues and safety risk associated with them. They are definitely trying to be a leader on the forefront when dealing with sustainability.

The reaction to Hurricane Katrina’s devastation shows how the natural environment could affect Home Depot business and it’s relation with the local community in particular. This is just one example from the text. Imagine if a tornado ripped through a town or a volcanic eruption disturbed Seattle area as it did in 1980. Home Depot would be affected by any of these natural disasters.

B. Societal Environment

a) Economic

Economic models established by company helps determine direction of industry (O)

Near record level in home ownership increases demand for DIY projects (O) Expansion into Canada & Mexico offers new stakeholders/consumers (O) Sales changed seasonally, winter being a low-growth quarter (T)

b) Technological

Installation of self checkout kiosk decrease time in store and minimize person to person contact (T)

Internet became another channel for consumers to purchase products (O) Addition of point-of-sale system, electronic bar code, and a UNIX server

assisted in efficient tracking a buyer trends (O) A second technology center was opened in Mexico (O) Overall upgrades to financial services in Mexico, call centers, and websites

help advance sales and revenue tracking (T)

c) Political/Legal

CEO are compensated up to 50% bonuses annually (T) Managerial level employees receive at a minimum 25% incentive pay (T) Floor workers and lower level employees receive no bonuses (T)

d) SocioCultural

Employees have opportunity for a cradle to the grave job (O) Train employees based on a bottom-to-top sequence (O) Informality among employees prior to Nardelli (T) Huge contributor during Hurricane Katrina relief (O) CommUnity Grants cleaned up play ground for children (O)

Even though Home Depot has expanded outside the US borders, they still haven’t left North America. These factors have not been tested elsewhere.

C. Task Environment

Threat of new entrants – Low Bargaining powers of buyers – Medium Threat of substitute products or service – Low Bargaining power of suppliers – Medium Rivalry among competing firms – High Power of unions, government, special interest groups – Medium

IV. Internal Environment: Strengths and Weaknesses

A. Corporate Structure

Management consists of a 13 member leadership team. These 13 Executive Officers work together to successfully manage the company.

CEO Robert Nardelli is very involved in every managerial decision. He gives the final word on what percentage of full time and part time employees he wants and where he wants them.

B. Corporate Culture

Home Depot emphasized an “orange-blooded culture” that emphasized individuality, informality, nonconformity, growth, and pride. This was promoted by to of the company founders, Bernard Marcus and Arthur Blank.

The senior executives recognize the amount of young people that work for the Home Depot and they want these employees to feel comfortable, relaxed, and secure in their positions.

When Bob Nardelli took over, he did away with the former concepts of this decentralized entrepreneurial venture. He brought a more rigid structure to his employees.

Staff strongly opposed the changes made by Nardelli and 98% of the top executives left the company.

C. Corporate Resources

1. Marketing

Offer a wide array of high-quality goods at low prices, while offering help from knowledgeable and helpful employees.

They used sponsorships that were viewed by millions including: NASCAR, U.S. Olympics team, and ESPN College Gameday.

Offered service to three primary customer groups: DIY (Do IT Yourself) Customers, DIFM (Do It For Me) customers, and Professional Customers.

2. Finance

In 2005 sales increased almost 100% from 2000 to reach $81.5 billion. Since 2000 nearly $13 billion was returned to shareholders in the form of

dividends and share repurchases. Average ticket sale hit an all time high in 2005 reaching $57.98 per

customer. Common stock actually dropped by 30% since Nardelli took the company

over. Nardelli is amongst six other CEOs who Fortune magazine identified in an

article entitled, “The Real CEO Pay Problem”. He had given himself pay and benefits exceeding $13 million in value annually.

3. Research and Development

In 1990 Home Depot tested a new Store Productivity Improvement program designed to improve storage and merchandise replenishment on the floor.

They tested renovations that would enhance customer access, reduce customer shopping time, and streamline merchandise stocking and delivery.

4. Operations and Logistics

Service objectives were focused around the Do It Yourself idea. Management wanted the customers to feel confident in themselves to do the job through the guidance they receive from the employees.

They offer power tool and truck rentals, Do It Yourself plans, Do It For Me plans, Commercial customer sales, and skillful and knowledgeable employees at the customers disposal.

5. Human Resources Management

As of January, 2006, Home Depot employed 345,000 people. 68% of these employees are full time and the rest are part time.

There are no unions, as the employee relations with the company are very good.

Company goal is to maintain employee turnover at no more than 20%.

6. Information Technology

Each store contains the typical point-of-sale system, bar code scanning system, and a UNIX server.

The charge card approval waiting time was recently reduced to less than 30 seconds to speed up customer check out time.

Home Depot continuously searches for updates to its information systems to accompany its growth and reduce its control costs.

V. Analysis of Strategic Factors

A. Situational Analysis (SWOT)

1. Strengths

Brand Awareness Rapid Deployment Predictable and profitable growth

Strongest balance sheet Number 3 in the core appliance market share

Secured 10% of the U.S. Market Largest home improvement retailer

Canada & Mexico Served three primary customers

Do-It-Yourself Do-It-For-Me Professional customers

Store Productivity Improvement (SPI) Concern for Environment “Recession proof” No single supplier Management and employee relations Brand Awareness

2. Weaknesses

Carpet Installation

Didn’t inspire customer service Negative comparable store sale figure Product Recalls

3. Opportunities

Introduce new products Maintain and grow leadership position Become the Nation’s largest diversified distributor Become number one in services Increasing direct-to-consumer channels New operational Initiatives Tremendous potential for future growth International Expansion

4. Threats

Reorganization Initiatives Increase demand for power tools Growth in online purchasing

B. Review of Current Mission and Objectives

Mission Statement

To provide the best customer experience in home improvement retail, the best place to work for our associates and the best place to invest

Objective

Cannibalize Attend to customer

VI. Strategic Alternatives and Recommended Strategy

A. Strategic Alternatives

Nardelli’s Three Es

Enhancing the Core Extending the Business Extending the Market

Research and Development

Sell new products Levering technology Use of recyclable material

Information Technology Strategy (LINUX)

Line sale tracking Trend data analysis

B. Recommended Strategy

Convert Existing Stores:

Upgrade Existing Employee Skills

Upgrade Employee Motivation

Establish and Maintain a Reputation Comparable to their current goals for

Quality and Value

Compete for Financial Resources

Increase Home Depots in Developing Markets

Implement State of the Art Technology

VII. Implementation

A. Alignment and Enhancement of its core business

1. Initiated superior information and computerized technologies2. Top level management is in charge however

Subordinates must be considered “Orange Blooded” experience should be maintained Must develop an integrated management plan Local managers should be trained, empowered and incentivized to execute

the master plan in a manner which best serves their customer base.

B. Programs are financially feasibleC. New SOPs must be developed

VIII. Evaluation and Control

A. Is the current information system capable of Providing Sufficient Feedback on Implementation Activities and Performance? Can It Measure Strategic Factors?

(Information)

B. Are Adequate Control Measures in Place to Ensure Conformance with the Recommended Strategic Plan?

(Information)

Exhibit #1

D. Summary of External Factors

External Factors Weight RatingWeighted

ScoreComments

Opportunities

Record-level home sales 0.2 4 0.8

Addition of UNIX 0.05 2.8 0.14

Employee training 0.1 3.6 0.36

Katrina relief 0.15 3.2 0.48

Expansion across borders 0.1 2.5 0.25

Threats

Self-checkout kiosk 0.1 3 0.3

Employee compensation 0.15 4.5 0.675

Change in seasonal sales 0.05 2.8 0.14

Informality among employees` 0.1 2.5 0.25

Totals 1 3.395

Exhibit #2

EXHIBIT 2

Internal Factors Weight RatingWeighted Score Comments

StrengthsSkilled, happy employees 0.15 4.00 0.60 Want to help

Involved senior management 0.10 3.00 0.30 ImportantProduct selection 0.20 4.50 0.90 Wide varietyService options 0.15 3.50 0.53 DIY, DIFMGood advertising 0.15 3.40 0.51 Widely viewedWeaknessesNew CEO management method 0.10 3.50 0.35 Original employees unhappyEmployee Retention 0.05 2.00 0.10 High turnover rateOverpaid CEO (public issue) 0.10 3.00 0.30 Public is unhappy with this

Total Scores 1.00 3.59

Exhibit #4

Liquidity Ratio 2005 2006Current 1.3 1.18(Current Assets/Current Liabilities)

Quick 0.401 0.306(current Assets-inventory/current liabilities) Leverage RatioDebt to Total Assets 6.00% (Total Debt/Total Assets)

Debt To Equity 1% 1.37%(Total Debt/Total Assets)

Activity RatiosInventory Turnover-sales 8.08% 6.40%(Net Sales/Inventory)Average collection (days) 75.7 76.8

(Inventory/COGS divided by 365)

Fixed Asset Turnover (Sales/Fixed Asset)Total Asset Turnover 1.87% 1.83%(sales/total asset) Profitability RatiosGross Profit Margin 33.50% 32.80%(Sales-COGS/Net Sales)

Net Operating Margin 10.70%

(Net Profit After taxes/Net Sales)

Profit Margin on Sales 32.8 1-(COGS/Sales)

Return on Total Assets 12.00% 13.00%(Net Profit After Taxes/Total Assets)

Return on Equity 21.00% 20.00%(Net Profit After taxes/Shareholder’s equity)

Exhibit #5

Exhibit #5AFY Ends each January(amounts in $M) 2007 2006 2005CASH FLOWS FROM OPERATING ACTIVITIES:

Net Earnings 5,76

15,83

85,00

1Reconciliation of Net Earnings to Net Cash Provided by Op Activities:

Depreciation and Amortization 1,88

61,57

91,31

9Impairment Related to Disposition of EXPO Real Estate 0 78 0Stock-Based Compensation Expense 297 175 125Changes in Assets and Liabilities, net of the effects of acquisitions:Decrease (Increase) in Receivables, net 96 (358) (266)Increase in Merchandise Inventories (563) (971) (849)(Increase) Decrease in Other Current Assets (225) 16 29Increase in Accounts Payable and Accrued Liabilities 531 148 645(Decrease) Increase in Deferred Revenue (123) 209 263(Decrease) Increase in Income Taxes Payable (172) 175 2Increase (Decrease) in Deferred Income Taxes 46 (609) 319(Decrease) Increase in Other Long-Term Liabilities (51) 151 119

Net Cash Provided by Operating Activities 7,66

16,62

06,63

2

Tows Matrix Internal Factors Strengths:

No single supplier Strong growth Concern for

Environment

Weaknesses:

Carpet installation Don’t inspire customer

service Product recalls

External Factors

Serves 3 primary customers

Brand Awareness

Employee/Management relationship

Opportunities:

Become largest distributor

Become #1 in services International expansion Potential for growth New operational

initiatives

Continue to add more suppliers and products

Use fast growth rate to internationally expand

Extend excellent service to all 3 customer types

Carry more brands than the competition

Start doing carpet installation

Push the initiative to treat customers better

Be picky about what products you carry by offering only good quality

Grow not only in size but in manager/employee relationships

Threats:

Reorganization initiatives

Demand for power tools

Growth in online purchasing

Stay organized as company expands

Provide what is in demand for all 3 customer types

Offer excellent service to deter customers making online purchases elswhere

Expand option to purchase online from Home Depot

Involve floor employees in product selection for sales

Allow employees and managers to work together to best organize the operations of the stores