I read this week's Business Week cover story on Bob Nardelli.  Now I understand why he's not CEO at General Electric.

Nardelli was part of the three-man competition to succeed Jack Welch.  When Welch decided to pick Jeff Immelt, he met with Nardelli privately to tell him.

Nardelli got the word at the Albany airport in November 2000. Welch told him that the job was going to Jeff Immelt. Nardelli wanted to know why. He kept at Welch. Jack's final answer, "I had to go with my gut."

That's not the kind of reason that sits well with Nardelli. He's a self-confessed numbers guy. He loves data and details and things that are logical. As his wife Sue puts it, "Bob is really good at dealing with X-Y-Z situations."

That doesn't include gut feelings. And that's part of the problem at Home Depot just now.

Home Depot was founded in 1978 by Bernie Marcus and Arthur Blank. They conceived of Home Depot as a builder's supply store that was open to the public.

The company grew at an astounding pace. They went public in 1981 and were listed on the New York Stock Exchange just three years later. By then they had 31 stores and were doing $431 million in sales.

Between 1986 and 1996 Marcus and Blank led Home Depot to forty quarters of successive record results.  By the time Marcus stepped down as CEO, Home Depot had 500 stores and $20 billion in sales.  During its first twenty years, Home Depot grew faster than any company except Wal-Mart.

Home Depot's success was built on Bernie Marcus' "love your customer" philosophy.  He gave his store managers pretty much unlimited power to do whatever was right for the customer.  The strengths of the company as Marcus headed for the door were a solid concept of a builder's supply store that was open to the public and execution based on loving the customer and store autonomy.

When Marcus left, Blank, who'd been "Mr. Inside" to Marcus' "Mr. Outside," took over as CEO.  By 2000, the board wanted a change and in November, Nardelli was available.  They snapped each other up.  Nardelli faced an immense challenge.

He was the first executive without retail experience to take over a publicly traded, non-food retail chain.  He was following a founder.  And there were problems with the company.

The flip side of that entrepreneurial, love-the-customer execution was astronomical inventory levels.  The flip side of twenty years of rapid growth was that systems and policies weren't where they should be for a $40 billion company, let alone the $100 billion one that Nardelli had said he would create.

To make his numbers Nardelli was going to cut labor and inventory costs, centralize management, and enter new markets. It was a solid, logical strategy that didn't seem to take people into account whether they were customers or employees.

Cutting labor costs meant that a lot of the expert part-timers that Home Depot had used to build customer loyalty were let go.  Inventory costs were slashed with process and technology.  Management was centralized by yanking control away from the store managers.

Nardelli sure wasn't loveable old Bernie Marcus, so he'd need a different management team that understood Nardelli's concepts and were willing to put in the effort. By June of 2001, 29 of what had been 34 senior Home Depot executives were gone. In their place were some promotions from inside and lots of folks from outside, many from GE.

Nardelli's strategy was to turn Home Depot stores into lean and profitable engines of growth. At the same time he was going to set up a separate business to serve small to mid-sized contractors who have different needs than home owners.   

Nardelli was under a ton of pressure and so he did what human beings do in that situation.  He fell back on what had worked for him before and surrounded himself with folks as much like him as he could find. Of the top 170 executives, 98 percent are new to their positions since he took over five years ago.

At GE, Nardelli had great success hiring junior military officers to fill management slots.  He set up a program to do that at Home Depot.  Discipline matters a lot to Bob Nardelli.  It's the core of his own character and he admires it. 

There's only one problem.  Since Nardelli has never actually been in the military himself, he seems to have a somewhat distorted vision of what makes for military excellence.  He may admire the Marines, but he doesn’t understand them.

His approach to the troops seems to be pretty much "my way or the highway."  Compare that to a quote from Fred Smith, founder of FedEx who served as a Marine officer in Viet Nam.  "The greatest leadership principle I learned in the Marine Corps was the necessity to take care of the troops in a high performance based organization."

The Marines are a highly disciplined bunch, but they also thrive on the "mission order," which gives a lot of latitude to determine how best to do the job.  You've got to allow for boldness and individual initiative and not smother it with regulations and reports.

The Marines know that a guy in a firefight doesn't fight for Corps or country, he fights for his buddies.  They also know that the most powerful "management tool" is culture and a couple of hundred years of tradition. Those aren't hard numbers things, they're gut issues and they're what give power to the techniques.

What Bob Nardelli has done is make all his numbers come up right while gutting the spirit of a great company.  Instead of building on the strengths of the Home Depot he found on arrival, Nardelli is trying to replace those strengths with his own. Only time will tell if that will work, but it seems like swimming upstream to me.

Jack Welch called Bob Nardelli, "The best operational manager I've ever seen."  That's great. It comes from discipline and hard work.  But it's not enough.  If you're a leader, you won't be great unless you feel a passion for what your organization does and care for your people way down in your gut.

Resources

The Business Week cover story is called "Renovating Home Depot."
http://www.businessweek.com/magazine/content/06_10/b3974001.htm

Here are a couple of quotes from the story that I find insightful.

"The University of Michigan's annual American Customer Satisfaction Index, released on Feb. 21, shows Home Depot slipped to dead last among major U.S. retailers. With a score of 67, down from 73 in 2004, Home Depot scored 11 points behind Lowe's and three points lower than much-maligned Kmart. …"

"To win the customer service war, Liebert [the guy in charge of US stores and an alumnus of the Naval Academy and GE] has adjusted his tactics. At the annual store managers' meeting in Los Angeles on Mar. 8, Home Depot plans to roll out a 25-page booklet dubbed 'How To Be Orange Every Day.' All store employees will be expected to keep it in their apron pocket. It contains aphorisms such as 'customers cannot buy what we do not have,' 'we create an atmosphere of high-energy fun,' and 'every person, penny and product counts.'"

Wally's Comment: A little orange book that you have to keep in your apron pocket?  Will Nardelli be "Chairman Bob?"  I wonder what the penalty will be for being caught without the book. 

"'In the military, we win battles and conquer the enemy,' says Ray [a store manager]. At Home Depot, 'we do that with customers.'"

Wally's Comment:  I don't know about you, but I don't go into Home Depot to be conquered. If this quote shows a common attitude, it's a very adversarial one and can't be healthy over the long term.

The story of Jack Welch's process for selecting his successor, including the story of the airport meeting with Nardelli is in Welch's first book, Jack, Straight from the Gut.
http://www.amazon.com/exec/obidos/ISBN=0446690686/wallybock/

The Business Week story tells us about a Marine officer who is at Home Depot as part of the Marine Fellows program.  He consults Marine Corps Doctrinal Publication 1 for insight on developing subordinate leaders.  You can get that publication as the book, Warfighting from Amazon.  I think it is the best single strategy book for American leaders.
http://www.amazon.com/exec/obidos/ISBN=0385478348/wallybock/