Internal Risk Assessment – Home Depot Essay

Former president and chief executive officer of the online auction site eBay stated, “A business leader has to keep their organization focused on the mission. That sounds easy, but it can be tremendously challenging in today’s competitive and ever-changing business environment. A leader also has to motivate potential partners to join” (Whitman, n. d. ). These wise words expressed from a wise and highly successful business leader speak soundly in relation to motivating employees and a sustaining a competitive business advantage. Along with a competitive advantage arises the need to assess the firm’s internal risk.

Departmental strengths and weaknesses, strategic endurance, and financial foundation all substantiate the level of allowable tolerance for internal risks. A publicly traded global firm, The Home Depot, Incorporated leads the world in retail building supplies and home improvement goods. According to the 2009 Form 10-K reported to the Securities and Exchange Commission (SEC), the company maintains 2,244 retail sites “Located throughout the United States including the Commonwealth of Puerto Rico and the territories of the U. S. Virgin Islands and Guam (“U. S. ”), Canada, China and Mexico” (The Home Depot: Annual Report, 2009).

The Home Depot wisely forecasts and assesses its risks while maintaining flexibility to assume increased or decreased influences affecting internal operations. According to the annual report for 2009, The Home Depot’s returns declined as compared with its 2008 earnings, as did stock prices. The company forecasted for this decline with the closure of several underperforming stores in 2008. Cutting the ties of projected threats made capital resources available to concentrate on heightening strengths and improving upon weaknesses. Company growth does not solely equate to the gain of more real property.

Growth produces many internal facets through improving and enhancing capabilities to overcome weaknesses within the organization. The company’s fiscal 2009 operating strategy maintains a centralized focal point in their core retail business. In this strenuous economy, they also realize that “Success depends upon our ability to attract, train and retain highly qualified associates while also controlling our labor costs” (The Home Depot: Annual Report, 2009). Lean production with educated employees becomes essential while awaiting the economy’s upward trend.

Customer loyalty and return business starts at the frontline through customer service. The operating strategy gears its strategic decisions toward raising improving capital allocation, controlling expenses to generate long-term value for its shareholders, the bottom line. To further the company’s 2009 internal strategic stability, in 2008 it opted to exercise valuable capabilities whereby counteracting short-term and long-term threats with the closure of several underperforming stores, shelving new store construction projects, and parting with business contracts loosening hindering obligations.

The reevaluation of the strategic business plan provided a means to target emerging opportunities that supported the restructuring planned objectives for 2009. Success of reducing threats evidenced opportunity to position the company for future growth in projecting a strengthened economy in forthcoming years. The Management’s Discussion and Analysis of Financial Condition and Results of Operations reveals 13 store openings with a concentration toward the “Core retail business, investing in our associates and stores and improving our customer service” (The Home Depot: Annual Report, 2009).

The report also ascertains that “The slowdown in the global economy and weakness in the U. S. residential construction, housing and home improvement markets negatively impacted our Net Sales for fiscal 2009” resulting in a 7. 2% declined Net Sales (The Home Depot: Annual Report, 2009). The company maintains the decrease in sales as a direct correlation to the underperforming store closures. Asserting that the weakened sales figures correlate to the competition, The Home Depot estimates a 21% market share in the United States. Reduced pricing drove an operations increase evidenced with the gross profit margin for fiscal 2009.

Compared to last year, the operating income as a percent of net sales rose 1% for $4 million over 2008 figures. A substantial savings exhibited with a decline in Operating Expenses in that expenditures shrank 10. 9% from last year. Employing new merchandising tools aid the company in realizing lean production measures with its supply chain. Forecasting capabilities substantiated through “The combined efforts of our supply chain, merchandising, operations and finance teams, we reduced inventory by almost half a billion dollars in 2009, while at the same time improving our in-stock position” (Datamonitor 360, 2010).

The organization’s strengths illustrate an emphasis in positive marketing, as brand awareness continues to retain The Home Depot as the largest home improvement retailer in the world, boosting its negotiating influence concerning capital financing. Competitive positioning emanates as a strength through the human resources department as the charge to maintain employee training geared toward the customer elevates as a long-term objective. The sales team continues to revolutionize efficient processes in bettering supply chain management to continue efficient production.

Additional strengths, as found with its customer satisfaction measure through a store performance survey called, Voice of the Customer, is a marketing and research effort to sustain market share strengths. A new education program, Customer First, launched in 2009 afforded each employee training, by the end of that fiscal year, aimed at placing the customer first. This measure supports management’s long-term commitment toward putting the customer first and gaining feedback to achieve peak customer service. Supplying the customer with exclusive and well-known brands is also a priority to distinguish public visibility and improve traffic flow.

Top manufacturers carried exclusively at the retailer include Behr Premium Plus, Husky, Ryobi, Pegasus, and Glacier Bay. The Home Depot’s chief executive officer stated in the annual report that “While our supply chain team is proceeding with the rollout of these new RDC facilities, we are also restructuring and improving other parts of our supply chain. We have closed legacy distribution centers, optimized distribution center operations and enhanced our transportation management systems, driving further supply chain efficiency in addition to the RDC rollout.

Creating exclusivity and optimal vendor relations develops a stronghold on the supply chain, along with securing customer loyalty. A weakness that The Home Depot notes in their Annual Report reveals that “Sustained uncertainty regarding current economic conditions and other factors beyond our control could adversely affect demand for our products and services, our costs of doing business and our financial performance” (The Home Depot: Annual Report, 2009). The decline in new residential housing construction displays a historic low of 43. 5%, according to the census report, and as compared with 2008 data (U. S. Census Bureau, 2009).

This figure reveals strategic business planning to maintain company stability, at a minimum, although ideally growth is the target. Competition is noted as another weakness as it negatively affects pricing, causing an upset in sales figures should a competitor win over the organization’s market share. A decline in product demand and services provided to customers also decreases the company’s market share, lessening sales, company profits, and shareholder wealth. The store’s mindfulness of the competition remains at the forefront of planning.

Failure to maintain attractive stores and to timely identify or effectively respond to changing consumer tastes, preferences, expectations as to service levels, spending patterns and home improvement needs could adversely affect our relationship with customers, the demand for our products and services and our market share” (The Home Depot: Annual Report, 2009). The risks associated with large companies are endless. Some of the identified risks with this company include changes or a failure with information technology systems, alterations in regulations and laws or accounting standards, and third party vendor relations.

This snapshot list of risks, or weaknesses, create potential financial repercussions with the way the company conducts its business plan. Cognizance of each area should be taken into account when preparing the SWOT Analysis, along with the strategic business plan. Overlooking an item may prove a detriment in company earnings. The Home Depot continues its strategic business plan to include forecasting for internal changes and developing capabilities that positively affect profitability as evidenced in revenues, operating profit, and net profit.

Recorded 2010 revenues of over $66 million, showed a decrease of 7. 2% over 2009, the operating profit was $4,803 million, for an increase of 10. 2% over the same period. The annual report indicated a net profit of $2,661 million, which was an increase of 17. 7% over the previous year (The Home Depot: Annual Report, 2009). Strategically assessing internal factors and employ its resources pertaining to the company’s strengths and weaknesses position its stronghold, enduring as the largest home improvement retailer in the world.

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