Quotes of the Day
The summers were hot in western Illinois, but for Bob Nardelli they were also a month too short. "We didn't have a lot of money in those days," says Nardelli, who went to college on a football scholarship and had to start training in August. "I only had two months to work. You had to have jobs that paid well." His solution? "I worked road construction. One year we laid concrete highways. Next summer I worked asphalt." Nardelli's road-crew summers toughened the soles of his feet and taught him a lesson he would never forget: take the most difficult work and work harder at it than anyone else.
That strategy served him well in many jobs, from baling hay to assembling refrigerators. But in the most important test of his life, sheer doggedness wasn't enough. The son of a GE factory worker, Nardelli, 56, had spent close to 30 years at that company trying to prove himself as CEO material. In November 2000 he lost a two-year, three-way contest to succeed Jack Welch. "To say I wasn't disappointed would be lying," Nardelli says. "You don't train to come in second." Nardelli bounced back to become CEO of Home Depot, a company half the size of GE, a month later. This time his GE management style and determination are paying off. After two years of struggling, Home Depot's sales and profits have rebounded. The stock has not quite regained its luster, and as Home Depot prepares to celebrate its 25th anniversary next week, Nardelli hopes investors will validate his steady transformation of a company that had nearly lost its way. He may have left GE, but Bob Nardelli still has something to prove.
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The succession race at GE was grueling and public. Nardelli, who has the forceful bearing of an offensive lineman, has compared it to playing in the Super Bowl--"the last two minutes for two years." He lobbied Welch for the chance to run his own unit, then took GE's weakest business — making electricity-generation equipment — and quadrupled its sales. But Jeff Immelt, who was known for his polish and intellect and ran GE's cutting-edge medical-systems business, won the top job. The other contender, Jim McNerney at GE Aircraft Engines, entertained an offer from 3M before the race was even over. That's not Nardelli's style. "I was not going to be outside interviewing," he says. "I gave it everything I had."
When Nardelli moved with his wife and four children from upstate New York to Home Depot's Atlanta headquarters, the home-improvement retailer was going through a rough patch of its own. Its co-founder and second CEO, Arthur Blank, was under pressure to leave; the company had added stores more quickly than it could properly manage, and comparable-store sales, the crucial measure of a retail chain's organic growth through existing stores, had been declining for eight quarters. Home Depot was expanding so quickly that many executives saw nothing wrong. "You had people who were enormously proud of what they had accomplished," says Frank Blake, who worked with Nardelli at GE and is operations chief at Home Depot. "It was a cock-of-the-walk sort of attitude."
Home Depot's swaggering culture attracted creative managers with a passion for their work. "We were a little bit rebellious, a little bit dangerous," says Tom Taylor, a 21-year veteran of Home Depot. Stores were expected to respond quickly to changes in their local markets, and they did. But Home Depot never took advantage of its size to negotiate national purchasing deals, and there was little communication among store managers. As Home Depot's growth slowed, it became vulnerable to competition from WalMart's cost cutting on one end and Lowe's more polished, female-friendly stores on the other.
Nardelli found a company that made decisions based on emotion rather than data and that desperately needed direction. He centralized management and introduced some Jack Welch — style discipline. Before he arrived, stores were not even connected by email. One resulting inefficiency: individual stores had tried myriad ways to keep plants in the garden sections watered properly, but "no one could tell you what worked and what didn't work," Blake says. Now several outlets are methodically testing solutions.
Nardelli's moves to introduce elements of GE's numbers-oriented processes, along with a new slate of top executives, ruffled feathers in Atlanta's clubby business community. "No question about it," says ex-CEO Blank, who is still active with Home Depot's charitable work in Atlanta. "There was a shift in orientation and culture. Some felt comfortable with that, some didn't." Blank says Nardelli's appointment was the first real management change in a company that was still essentially run like a family business. Taylor says Nardelli's appointment was "as if my mother had come home and said my parents were getting divorced." Yet Nardelli's tireless work and willingness to immerse himself in the business eventually won over many skeptics.
Nardelli rode out the transitional bumps by defining a strategy and sticking with it: promote higher-end products and services in cleaner, better-organized stores. Nardelli has a laboratory for these ideas in the Home Depot across the street from his 22nd-floor office. (He often drives in on weekends — sometimes on his Harley-Davidson motorcycle.) Floor displays explain big-ticket items like lawn mowers and washing machines. Instead of paint cans lined up on shelves, a "color-solutions center" showcases Home Depot's color-matching technology.
None of the improvements are breakthrough retailing ideas, but by sprucing up displays and introducing higher-end products, Home Depot can get each shopper to spend a little more. Home Depot's best-selling ceiling fan used to be a $19 model; now it's a $199 model. In the first quarter, the average ticket rose 7.4%, to $55.11, a record for Home Depot, although still below the $59 average ticket of Lowe's.
Nardelli, who loves digging into the details of running a business, admits that the vision thing is more of a struggle. "I feel like I got to work at it sometimes," he says. "There are people who are blessed — things just come to them. I think I'm conscious of it, and I really try to apply myself." So far, his approach is working. Comparable-store sales rose 7.7% in the first quarter, the biggest jump in five years, while profits rose 26%, to $1.1 billion. Overall sales increased 16%, to $17.6 billion.
Yet investors still have their doubts. While Home Depot's stock has recovered 46% over the past 18 months, to about $35, it is nowhere near the $60 highs of 2000. Some analysts say fears that higher interest rates will deter home-improvement spending are hurting the stock. Nardelli doesn't think interest rates can derail Home Depot, nor is he looking for radical ideas. Wal-Mart made the risky move into selling groceries when it went through a period of sagging sales in the mid-1990s and built a wildly successful new business. Instead, Nardelli is stretching the company's existing businesses. He is expanding its services to capture retiring baby boomers who prefer "do it for me" to "do it yourself," and the company will soon start selling in China, having had success with its outposts in Mexico and Canada.
In many ways, Nardelli has finally come into his own. Local businesspeople say he has joined the ranks of Atlanta's insiders, notably when he was elected to Coca-Cola's board of directors in 2002. Though Coke's board has been criticized after management missteps, it is still the city's corporate crown jewel. "Among Bob's peers it was an important recognition," Blank says. Nardelli was host to about 200 prominent conservatives last month at a $3.2 million fund raiser for President Bush in his 10-bedroom mansion.
Nardelli says his new projects are what keep him up at night now, not the disappointments of the past. "I moved on," he says. "I couldn't be happier." He even attended Welch's April wedding in Boston. "I don't have to prove myself to Jack Welch," he says. "My shareholders, my customers, my associates don't care what happened in the past." But it would be a mistake to think Nardelli isn't still pushing himself. "Am I competitive?" he asks. "I was there, and I am here." It's a new game, and Nardelli is determined to win it.
- Jyoti Thottam/Atlanta