The Home Depot: Leadership in Crisis Management Introduction Established in 1979, The Home Depot has proved to be a leading retail company founded upon providing excellent products at competitive prices sold from knowledgeable sales representatives. Through this concept, The Home Depot has dominated both professional and do-it-yourself sales across the world. In 1992, The Home Depot was faced with a new challenge. Hurricane Andrew struck with vengeance and devastated 75,000 homes across Florida. Since 10% of The Home Depot’s stores were located in Florida, this quickly became a corporate emergency.
The Home Depot stepped up to the challenge and stood behind their customers. Depot froze prices for supplies the community would need to rebuild or even sold products at costs in some cases. Then-CEO Bernie Marcus stated “This is not a time to make money on the back of other people’s misfortune” (Herman). This attitude proved prosperous for The Home Depot when profits increased 44%. With this eye opening experience, The Home Depot decided to take further actions to prepare their employees and customers for future hurricanes.
Paul Raines was hired by The Home Depot and eventually was made the Divisional Leader for the Southern Region.
His experience in the third world countries made him the perfect candidate to lead Depots crisis management project. When 2004 rolled around, Florida was viscously attacked with four storms in a seven week period. Through the devastation, The Home Depot utilized this period as a learning tool. The storms of 2004 developed three main “Crisis Management” concepts for The Home Depots: speed, preparedness, and chain of command. Speed was crucial for the community and The Home Depot strived to open as swiftly as possible after the storms ceased.
The Home Depot stayed ahead of the storms by having a surplus of storm relief inventory, as well as workers close enough to be called upon when the major threats had passed. Finally, the employees of The Home Depot understood who was in charge and calling the shots. From these concepts a “Crisis Command Center” was born for category two hurricanes or worse. The Command Center consisted of conference rooms where representatives could meet and develop a plan of attack. With the click of a mouse they were able to determine what their customer’s main needs were.
The main goal of the Command Center was to insure employee safety, re-open stores, and make sure computer systems were accurately working which included pay roll and cash registers. In 2005 the Command Center was put to the test when Hurricane Katrina attacked the Gulf Coast. The Home Depot began preparations well in advance and was ready to reopen stores as soon as possible after the storm had passed. Managers worked eighteen hours a day, which paid off when of the thirty-three stores in Katrina’s path all but ten opened the following day.
With such an elaborate Command Center and well informed staff, The Home Depot was able to provide the communities with the supplies they needed to begin rebuilding their homes (Herman). In 2007, a new crisis was thrown at The Home Depot. This predicament was far more personal than any storm could ever be. Columnist Scott Burns verbally attacked The Home Depot in a published article on MSN. com. Customer service, products, inventory, and cleanliness were all under attack by disgruntled customers. In a short period of time, there were over 7,000 posts and 10,000 emails of customer complaints.
Corporate Officials were outraged over the online posts. This was a delicate situation that needed to be dealt with. Official’s feared making a public statement would draw media attention to the article which had not yet been a hot topic for the television. Then CEO Frank Blake, felt he had no choice but to respond on the MSN post board. He made a lengthy apology to all disgruntled bloggers. He pleaded for all concerns to be forwarded to a private email account. He vowed to improve upon these negative insights and hoped to once again regain their trust. As Blake assumed, the media went crazy and picked up the article.
Blake decided to utilize the Crisis Management plan to handle their current reputational attack (Herman). At the current time, the main issues faced by the “Command Center” were natural disasters such as hurricanes. From the Crisis Management Command Center, The Home Depot had found the key to success when handling natural disasters: speed, preparedness, and a clear chain of command. Utilizing these tools, The Home Depot had developed a great starting point for handling their Reputational Crisis. The Home Depots crisis management skills were analyzed in a SWOT analysis, which can be viewed in appendix A.
In mainstream media, the public tends to remember the negative and forget the positive. Regardless of how many wonderful things The Home Depot had done for the community, the current reputational attack was going to be remembered the most. Blake’s swift response was both beneficial and harmful to The Home Depot in my opinion. I agree the Home Depot needed to respond quickly to the article; however, I feel they should have brought the media’s attention to the article through a press conference rather than by a post on a message board. If The Home Depot had made a verbal response, they could have put their own spin on the article.
Blake’s apology was a good tactic which could have been carried over to a verbal response. Reputational attacks are bound to happen to major companies and The Home Depot needs to learn from this and be prepared to respond through positive publicity. Ways to accomplish this would be through donations, charity events, sales, or other generous acts which would benefit the community. These acts could help cover reputational attacks. The Home Depot also needs be prepared with the proper chain of command to respond to situations like these (Herman). Analysis: Decision Making Biases
The Home Depots reputation crisis presented several decision making biases which involved crisis management situations where decisions had to be made under uncertainty. These biases included overconfidence, inertia, selective perception, representation, and self-serving biases. The overconfidence bias was based on the illusion that a company was superior to its competition, allowing the company to focus on successes and forget the situations where failures occurred. The Home Depot most likely assumed they were one step ahead of the competition.
This assumption led them to believe their customers also felt The Home Depot was a superior company. Unfortunately, this was not the case and was revealed through the MSN article. The inertia bias was based upon the term procrastination which demonstrates when a projects immediate effect is unpleasant; a company will delay the project even if the long term reward outweighs the immediate negative effect. Essentially, this was a probable cause why The Home Depot postponed improving upon customer service, products, inventory, and cleanliness before it was attacked by the media.
The Home Depot also likely encountered the selective perception bias. This bias focuses on instances where a company was influenced by its own base of interpretation more than the environment around them. In simplistic terms, The Home Depot had tunnel vision and was not focusing on the needs of their customers. The representation bias also applies to crisis management when companies ignore the laws of random occurrences and evaluate the likelihood of an event (social disaster such as the reputation attack on The Home Depot) based on how closely they resemble some other event (natural disaster for instance).
Lastly, but not least, the self-serving bias focuses on situations where a company takes recognition for successes but blame external factors for failures. The Home Depot could have easily gone down this path with its reputation crisis, but it stood up to its own mistakes and faced the issue head on (Lehrer). Analysis: Crisis Leadership Now As discussed in the introduction, The Home Depot’s Disaster Management plan was based on three concepts which included speed, preparedness, and a clear chain of command. Throughout the years, The Home Depot proved their Disaster Management plan worked for various tragedies encountered by the company.
Their methods have fallen right in line with approaches mentioned in the book, Crisis Leadership Now. Within this book, it states “If businesses are ready to survive and recover, the nation & our economy are more secure” (Barton). The Home Depot was prepared and wasn’t afraid to get involved. The Home Depot’s Disaster Management plan also went along with the material within the Crisis Leadership Now, by showing The Home Depot practiced the idea that a company can best shield itself not just by assuming it’s protected, but by investigating deeper into potential problems and exposures.
Along with that, The Home Depot was also promoting family and individual preparedness for disasters. Home Depot’s latest crisis involving the company’s reputation dealt with managing a crisis and handling key stakeholders. With such a public outcry for improvement, a quick response was needed to keep control of the situation. Crisis Leadership Now explains an “8 hour window” concept where “If you can capture what has happened, who is impacted, and how you intend to communicate your response with a clear plan of action within 8 hours, you have the foundation for an excellent recovery plan” (Barton).
I believe The Home Depot followed this concept in formalizing a response on the MSN. com message board. The question which arises however is whether or not they should have carried the company’s response over to a verbal reply that would have appealed to more dissatisfied customers. Analysis: Managing the Unexpected The Home Depot’s Disaster Management Plan also follows several principles for HRO’s (high reliability organizations) that were laid out in the book “Managing the Unexpected”. There are a total of 5 principles which include: 1.
Preoccupation with Failure – Do not focus primarily on business successes. 2. Reluctance to Simplify Interpretations – See as much as possible and welcome diversity. 3. Sensitivity to Operations – Be more attentive to the front line and be less focused on strategy. 4. Commitment to Resilience –Have the ability to bounce back after mistakes and learn from them. 5. Deference to Expertise – Do not focus expertise decisions on a hierarchical system where the top level makes all decisions. Place authority with person(s) with most expertise wherever they are located in the hierarchy. Weick) It is in my opinion that The Home Depot closely followed all five of the principles above. The two that stand out the most to me are the company’s “Commitment to Resilience” and “Deference to Expertise”. The Home Depot’s commitment to resilience can easily be seen over the years where the company produced a quick turn around after major natural disasters, as well as their response after the company’s latest reputational crisis Also, the company’s deference to expertise can be seen as top executives gave more power to the individual store managers.
The executives realized that the specific store managers had more expertise for the individual store location than executives did. The fact that The Home Depot closely follows all five of the principles stated above shows that the company is a highly reliable organization (Weick). Conclusion The Home Depot has become an industry leader in Crisis Management. They continue to learn from their mistakes as well as from experience. The Home Depot should keep in mind there is always room for improvement.
The key is not only to have plans set in place for natural disasters, but also for disasters such as reputational attacks. The Home Depot should continue to prepare for all sorts of tragedies. This will only insure their longevity in the field, as well as reassure customers of their core values. The Home Depot should rejoice in their successes and embrace their faults when trying to improve. Negative publicity will always be a concern for such a large company, but with a secure plan of attack, The Home Depot will continue to lead the way for home improvement.