Important External Environmental Factor in the Industry

Introduction

The Home Depot is a home retailer, and changes in the economy influence its performance. Therefore, the most important external environmental factor is the economy, which presents a positive impact when it is growing. The value of the U.S. dollar against other currencies also affects the purchasing power of shoppers in regards to imported commodities and those manufactured in the United States. Overall, when the economy is growing, there are more jobs and a considerable increase in home consumer spending, which is a good thing for the market performance of The Home Depot (Lauchlan, 2015).

At the industry level, The Home Depot depends on environmental factors affecting the retail industry. They include trends in furniture and home furnishings, electronics and electronic supplies, building materials, garden equipment, and other related goods. Any change in a particular sector’s demand affects the industry. Most significant changes can be due to economic reasons, as well as state and federal government policy. For example, changes in standards for consumer electronics and import taxation affect prices of goods. They force retailers to either absorb additional costs or pass them to the consumer and risk losing their competitiveness (Goodman, 2009).

The labor market has a direct effect on The Home Depot performance overall because the company has an extensive network of stores and employs thousands of employees. Changes in their demand for compensation and related issues, such as unionization, will affect its performance.

Identification and Analysis of the Most Important Internal Strengths and Weaknesses of The Home Depot

The main strengths of The Home Depot are its brand reputation, the quality of products that the company offers in its retail stores, and the focus on customer service. The company has also been investing in research and development, which allow it to create different innovative solutions for meeting its customer service needs. These strengths work together to ensure that The Home Depot has a competitive advantage in the U.S. home retail industry. The Home Depot has been growing its brand through marketing and improved customer relationships in the last decades.

Continued focus on ensuring that its prices remain competitively low has forced the company to work closely with its supply chain partners. As a result, it has also been able to gain significant insights into inventory management, which has enabled it to invest in different technologies. Combined operations excellence and customer intimacy has worked well for the company. The Home Depot now supersedes most of its competitors in being responsive to customer demands (Barrows, 2015). It is using technology to ensure that customers have different shopping options. Customers can shop online and pick goods at the store. They also have options for checking out at mobile checkout points within stores. The staffs at The Home Depot have been trained to offer the best service and focus on the long-term effect of their interaction rather than short-term price savings.

The primary weakness of the Home Depot is that it has not increased the diversification of its product portfolio. The company has relatively stayed the same in terms of what it offers to the customers, while its rivals could experiment with different ranges of goods. The company is also dependent on large suppliers for its inventory, which limits its bargain power compared to what it would be able to achieve with smaller manufacturers. Besides, faulty products by manufacturers that are sold through The Home Depot outlets could be recalled. When this happens, the reputation of the retailer suffers.

Assessment of The Home Depot Resources

The biggest resource for The Home Depot is its lucrative store locations combined with a high number of stores. This resource ensures the company enjoys a competitive edge due to economies of scale and easy access to customers. The second resource is the excellent customer service at the company. As a resource, customer service ensures the enterprise continues to grow even when its external environment conditions are unfavorable. A third valuable resource for the company is its skilled labor supply. Unlike its rivals, The Home Depot devotes resources to educating and equipping its employees so that they become product experts. As a result, it has developed a human resource capacity, which is now part of its sources of competitiveness. Fourthly, the culture at The Home Depot, which is driven by a leadership and management team that is focused on customer service, ensures the company remains adaptable to changing environmental circumstances, both internal and external.

Assessment of The Home Depot Competitive Position and Possibilities

The Home Depot differentiates its products and services by caring about its interaction with customers. The company, otherwise, copies almost everything that its competition in the same industry does. As a result, in terms of operational excellence, the company is above average, but it is not a market leader. Other retailers have been able to focus on significant investment and operations areas, which ensure they can beat the prices of The Home Depot and still command significant revenues. On the other hand, The Home Depot has emphasized by adopting best practices and threshold competencies in its retail business. These include the establishment of distribution and inventory management systems that provide it with the necessary economies of scale. They also offer operational benefits in reduced costs. Nevertheless, The Home Depot has made progress in customer segmentation (Hitt, Ireland, & Hoskisson, 2009).

Instead of grouping customers according to their demographic characteristics, the company has been able to analyze their purchasing patterns and developed a solution that allows it to meet the client expectations before they get to the store and whenever they are in its stores. A focus on customer interaction has ensured The Home Depot remains a market leader in the retail industry in the customer service offering. The company embraces a long-term perspective on customers interaction and has benchmarks to ensure the gains made in improved interactions are sustained throughout its stores. It also invests in employee training and management training in the same area of customer services to improve the employees’ people skills and enhance the shopping service that the company offers. The Home Depot’s competing home retailers are Lowe’s Companies Inc. Menard, Inc., and The Sherwin-William Company. None of the competitors has achieved strategic success to match The Home Depot.

Analysis of Structure of The Home Depot and its Effect on Organizational Performance

The Home Depot has a centralized structure where all executive decisions and operational decisions follow a hierarchy arrangement. Decisions about store expansion, investments, distribution and suppliers’ engagement, as well as employee relationship issues are handled within the centralized structure. Communication travels along official channels and decisions are communicated in the same way up towards management and down towards subordinate employees (The Home Depot, 2015).

The benefit of a centralized structure like the one at The Home Depot is that it allows the personality of the CEO to transcend to the whole organization. Therefore, when leadership style adapts well to the organizational requirement, there is a high likelihood of the organization being responsive to its operating environment and growing rapidly. This has been the case at The Home Depot, which has been able to surpass its growth targets due to military-like execution of executive orders geared towards a responsive customer service. The company is in the retail industry, whose success demands a tight grip on costs. Centralized operations, especially in inventory control and engagement with supply chain partners give the organization sufficient negotiating power with individual and grouped suppliers to ensure the organization gets the best deals possible (Stampfl & Hirschman, 2011).

A centralized structure also contributes to career advancement, as there is a proper hierarchy to follow in promotions within the organization. However, it can also be a limiting factor for employees who do not have senior management positions as their goals in their careers. At the same time, the hierarchy is beneficial to the company when it has to respond to particular employee concerns, as its leadership can effectively instruct the management to take specific decisions. Decision-making is fast, which ensures the company’s quest for differentiation from the competition is achievable.

References

Barrows, D. (2015). Home Depot (HD) stock is worth the stretched valuation. InvestorPlace. Web.

Goodman, J. A. (2009). Strategic customer service. New York, NY: AMACOM.

Hitt, M., Ireland, R. D., & Hoskisson, R. (2009). Strategic management: Competitiveness and globalization cases. Mason, OH: South-Western Cengage Learning.

Lauchlan, S. (2015). Digital transformation progress report – Home Depot builds a digital future. Diginomica.com. Web.

Stampfl, R. W., & Hirschman, E. (Eds.). (2011). Competitive structure in retail markets: The department store perspective. New York, NY: American Marketing Association.

The Home Depot. (2015). Corporate governance overview. Web.