Dan Markovitz is our guest blogger again today. Dan has been a regular contributor of articles to the Superfactory website and to the Evolving Excellence blog, and you’ll be hearing more from him in the future.
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In The Toyota Way, Jeffrey Liker identifies an eighth waste (in addition to Ohno’s traditional seven): "unused employee creativity." The Wall Street Journal’s story today on Bob Nardelli’s departure from Home Depot illustrates this waste in a way that would be comical, if it weren’t so sad for the employees.
According to the article, Home Depot faced intense pressure to grow in the face of extraordinary return’s from Lowe’s. In response,
Mr. Nardelli moved to cut back on higher-paid full-time employees with experience as plumbers or handymen, and to rely more on part-time workers with less experience answering home-improvement questions from customers. Frequently, Mr. Nardelli found himself fending off questions about deteriorating customer service and about whether cost-cutting was the cause of that. Every few months, Home Depot management would roll out another program aimed at improving customer service, from employee bonuses to customer call buttons. But none appeared to have any lasting effect.
So, in an effort to grow, the CEO cut back on the very employees who had the greatest ability to provide customers with value and increase sales. This sounds like a strategy to cut costs, not to grow the business. While cost-cutting might provide a short term boost to the stock, it’s not a great strategy to increase sales or develop customer loyalty.
The supreme irony is that he then spent additional money on customer service improvement programs. What was the total cost of laying off experienced sales people, hiring new people, and introducing these programs? How does that cost compare to keeping the quality, experienced salespeople in the first place?
The article goes on to say that at a later date,
Mr. Nardelli took criticism [from analysts and investors] for not investing more money into renovating Home Depot’s aging stores and for not hiring more seasoned employees capable of offering better home-improvement advice.
Of course, Mr. Nardelli had laid off just this type of "seasoned employee" several years earlier. Perhaps they had gone to work at Lowe’s.
CW says
My company recently laid off nearly 10k employees as part of an effort to become more “Lean” as they put it. Unfortunately in addition to losing all those that were laid off, many of the high performers within the company left because of the distasteful manner in which the layoffs occured. This was orchestrated with help of external consultants to improve our company and increase our stock. These consultants proceeded to use industry benchmarks as their measure of what our company should look like. Unfortunately we were always considered an industry leader, therefore, we regressed to the mean from our leadership position with the help of overpaid consultants. And to add insult to injury our stock price is right were it was at when they started.
Dave says
The good news is that Mr. Nardelli was laid of himself for his poor performance. The bad news is that he recieved $214 million for his performance.
Mark Graban says
Determining headcount (at a site, department, or company level) using benchmarks is ridiculous. I’ve seen hospitals hurt by that practice… lean takes a very different approach, thankfully. With lean, you have to look at the details of your actual processes and the work content. If you want to reduce headcount (and you have to be careful in how you do this), you have to reduce waste. Who cares about benchmarks if your process and layout is set up with a lot of waste? YOUR site might perform much worse with the industry standard headcount if you have more waste that you don’t eliminate.
The typical benchmarking approach stinks. No wonder so many people hate consultants.
Barry "aka the Hillbilly" says
214 Million is criminal. You could probably feed whole countries in Africa for that amount.
I hope the Home Depot Board of Directors vote to pay Mr. Nardelli in North Korean Won.
That would make me feel better.
My personal experience with Home Depot tells me they might have more than an eighth waste. I am pretty sure they are at least in the double digits.