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Ivory Tower vs. Cowboy Entrepreneurialism

 

Bob Nardelli was the CEO of Home Depot, but left the company because there was too much clamor for him to leave. He wasn't beloved by anyone. So yeah, his severance package is worth sour discussion, but here's why he failed in his job:

Mr. Nardelli set out to stamp out the decentralized "cowboy culture" of the company. Home Depot's founders had allowed store managers to run their stores as autonomous fiefdoms with little regard for uniformity or efficiency. This entrepreneurial spirit had made Home Depot one of the hottest growth stocks ever, and its store count doubled nearly every four years. Its surging stock price made hundreds of early employees millionaires.

Mr. Nardelli's management style was a stark contrast to that of Home Depot's paternalistic founders, Bernard Marcus and Mr. Blank, who were treated like heroes during store tours and personally tutored employees on customer service. Mr. Nardelli often appeared uncomfortable donning the retailer's trademark orange apron and dealing with front-line employees one-on-one.

He didn't know the customers, he didn't trust the store managers, and he sqaushed the "can-do" entrepreneurial attitude of the employees. Where was the "up" in hiring the man?

Aside from those who took the risk in starting a successful company in the first place, no one is worth a severance package of $220 million. A founder might have grown their company to earn that much, but then that's just the reward on their investment, and not a severance package.

So what are the founders of Home Depot doing these days? One of them is into philanthropy. Bernie Marcus gave a $15 million grant to Georgia Tech for nanotechnology research. But buried in the article is a great discussion of why Wal-Mart is great and why we shouldn't fear progress:

What about creative destruction and workforce displacement?

Progress does not displace people. Progress creates jobs. Every time. I remember when I first went to a supermarket and everyone cried out, "You are going to put the small grocer out of business." But then you had to look at the other side. The product got cheaper. As more people could afford it, the farmers produced more. Truckers had to ship more. Consumers had more options due to those efficiencies. The Home Depot hired hundreds of thousands of people and more products had to be sold and manufactured and shipped. As a result, a lot more people were employed because of big, efficient businesses than several fragmented, small businesses. And consumers are better off.

Everyone is always up in arms when a Wal-Mart opens, but when you offer them $4 prescriptions, they love it. Do you have any clue how much money that frees up and how much more money can go back into the economy? Think of the horse and carriage. Everyone took one, and the buggy whip business was a great business. Then along came the car and people stop using the horse and carriage and the buggy whip manufacturer eventually went out of business. Was that a bad thing? No. Consumers benefited because they could now go from New York to California in a few days as opposed to a month. Likewise, the airplane. It's constantly getting faster. It used to take three flights to get cross country. Now it takes five hours. In a few years it will probably take only an hour.

No wonder this guy was a success - he understands the marketplace and the workforce.

Nardelli's mistake was micromanagement. Politicians often do this with taxes and regulations. Bernie Marcus, wise man that he is, knows that people do best when allowed to find their own way and are rewarded for doing so, be it a store manager of Home Depot trying to solve problems for customers or Joe Lunchbox trying to find a job in this big marketplace.

Displacement is the way of progress, and progress these days happens mighty fast.

"If you don't like change, you're going to like irrelevance even less". - General Eric Shinseki

You have to trust the wisdom of the crowd to find its own way and not seek to manage it. Because you can't. No one can. Trust and reward - it's a better way.

 


by Brett Rogers, 1/4/2007 1:27:25 PM
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