COMPETITIVE
STRATEGY DEVELOPMENT
The Most Important
Overall Customer Values in Relation to Purchase Decision
Service Quality
- This factor is the most important one that customers value in the Home
Improvement market.
This is primarily the in-store service via the staff.
How knowledgeable and friendly there are.
Home Depot scores a "Very Good" on this factor as does its
chief competitors, Sears Hardware and Lowe's.
Menard’s scores a satisfactory.
Availability
Price
- Product prices is the second most important factor behind Service Quality.
In this area, Home Depot gets the highest marks, "Excellent",
in this area, as does Menard’s.
Sears scores a "Satisfactory" and Lowe's a "Very
Good".
Customer Value Factors Where Home Depot Needs
Increased Emphasis
|
Getting Around the Store - In the other three Market Perceived Quality Areas, Home Depot scores an "Excellent" or a "Very Good". In "Getting Around the Store", the company gets a low, "Unsatisfactory" score. This factor involves the overall layout and design of the Home Depot "big box" stores. Customers feel the stores are either getting too large, or they are just too confusing and overwhelming to the average person when shopping there.
Because
Home Depot scores so low in this factor, well below any of its competitors -
Lowe's and Menard’s score a "Satisfactory" and Sears scores an
"Excellent" - the overall Core Competitive Comparison suffers a great
deal.
9.2
Select Those Core Competencies which:
Contribute
Mostly to the Selected Customer Value Factors
Service
Quality
2.
Getting
Around the Store
1)
Do-It-Yourself
Experience - A very strong
relationship exists between this core competency and two customer value factors,
Service Quality and Selection & Availability.
Moderate relationships exist between DIY Experience and the other three
customer value factors, Quality of Products, Getting Around the Store, and
Availability Price.
The
Service Quality is excellent, but the relationship between DIY Experience and
Getting Around the Store is the area where the breakdown between Home Depot and
how its customers rate value.
This relationship is moderate and it needs to be strong.
The strong emphasis on Service Quality and Selection and Availability
does not fully address the customers in-store service needs.
Getting Around the Store needs to be factored in the DIY Experience mix
much more than it is.
2)
Service
Delivery Processes - A very
strong relationship exists between Service Delivery Processes and Service
Quality. Moderate
Relationships exist between this competency and Quality of Products, Selection
& Availability, and Getting Around the Store.
A weak relationship is present between Service Delivery and Availability
Price.
Again, Service Quality is the strong relationship. Another strong relationship needs to be between Service Delivery Processes and the CVA of Getting Around the Store. Customers value Price, but not as much as the in-store experience. Delivery Processes encompasses how relatively easy the time it takes a customer to find what they are looking for. The moderate relationship between Service Delivery Processes and Getting Around the Store needs to be stronger.
Have the Best Value/Cost Efficiency Ratios
1.
Service
Delivery Processes - 2.02
Service
Delivery Processes as a competency leads the way with 2.02.
The value contribution is double the cost contribution.
This is the competency that any home improvement retailer needs to focus
on the most as it is all about the customer and the service potential he can
receive. Home Depot’s strong
score stems from Service Delivery Processes’ moderate to strong relationship
with all four customer value factors and the low availability price it is in a
position to offer.
2.
DIY
Experience - 1.14
DIY
Experience comes in second to Service Delivery Processes with a score of 1.14.
The value added is just higher than the cost contribution.
This competency also has moderate to strong relationships to all of the
customer values, but its ratio suffers by the amount of cost Home Depot
allocates to it. Roughly double of
that of Service Delivery Processes. This
ration suggests that Home Depot should be getting more customer value for the
cost that they are allocating to this competency.
3.
Competitive
Expansion - 1.14
Competitive Expansion also warrants a 1.14. The cost is not quite what the value is. This score is actually a good one for the Home Depot Company. Competitive Expansion is a competency that relates weakly to moderately to the customer value factors, so success is this area is not necessarily something the customer feels as it relates to his in-store experience.
Need
Most Improvement Relative to Competitors' Competitive Core Competence Comparison
Scores
Among
Home Depot and its competitors, Sears Hardware, Lowe's, and Menard’s, Home
Depot scores the best or second best in Comparison Scores over all four
Competencies. In the Total Score
column however, Sears Hardware comes ends up with the highest in the score of
82. Home Depot comes in second with
a score of 80. Lowe's places third
with a score of 78. And bringing up
the rear is Menard’s with a mark of 64.
The top three Home Improvement Retailers are very close to each other -
only 4 points separates the three of them, but Home Depot can move ahead of the
other two by increasing its emphasis on two Core Competencies:
1)
Service
Delivery Processes
- Though Home Depot prides itself on great service, it would appear that this
competency is not what they are focusing enough energy on.
2)
Do-It-Yourself
Experience - a
very good way of increasing this score is to focus on the customer value of
"Getting Around the Store". Home
Depot scores very poorly in this (2 out of 5).
If it can simplify its store plans, or make the layout of floor plan
easier to navigate, this score should go up and the overall DIY experience can
climb up two whole points. This competency, DIY Experience, can be enhanced if Home
Depot customer are not so overwhelmed, or lost when they enter these giant
retailers.
9.3
Core Competencies Competitive Advantages
Estimate
the sustainability of Core Competencies’ competitive advantages and make your
final selection of Core Competencies.
Use the four criteria of appropriability, durability, transferability and
replicability. Mark (+) if sustainable and (-) if not sustainable for each core
competence on each four criteria.
§ Appropriability (+)
The Home Depot can sustain its appropriability because its Distribution and
Logistics capability does not really reside in its employees, who could leave
the Company anytime, but ultimately depends on a strong distribution and
delivery network which has been carefully built up over time through
long-standing relationships with suppliers and manufacturers and through
outright purchases of delivery and distribution companies.
The Home Depot has clearly demonstrated that its capabilities in
achieving economies of scale in purchasing and distribution is already imbedded
in the Company culture.
· Durability (-)
Rapidly
changing technology can drastically shorten the utility of The Home Depot’s
competitive advantage in Distribution and Logistics. Unless the Company
constantly updates its systems for operations and distributions, its competitive
advantage will probably not be sustainable. In addition, technology can also
accelerate closure of the gap between The Home Depot and its competitors as
competition can have access to technology to make their distribution and
logistics processes more efficient.
· Transferability (+)
The Home Depot
can sustain its competitive transferability in Distribution and Logistics, not
only because it has the largest number of proprietary individual store
locations, relative to the competition, but since it has capitalized on being
both the pioneer and market leader in its industry by building up an excellent
corporate reputation, cementing relationships with its suppliers and
manufacturers and, most importantly, in building up an impressive distribution
and delivery network. Because these resources and capabilities have been built
into The Home Depot’s organizational routines and processes, the Company is
able to fully maximize its value chain and in turn, deliver added value, through
a wide assortment of products at low prices, to its customers
· Replicability (-)
The
Home Depot’s resources and capabilities in Distribution and Logistics may have
taken an enormous amount of time and investment in order to acquire; this
endeavor, however, can be replicated by any of The Home Depot’ s competitors,
if they see it strategically sensible to do so.
Service
Delivery Process
· Appropriability (+)
Providing
good customer service, along with quality products at low prices, is highly
associated in the minds of consumers with The Home Depot. Indeed the Company has
ensured that good service is a core competence over which the Company itself
clearly has property rights from which it will continue to derive value, even
though employee turnover might exist. Over the years, The Home Depot has ensured
that its service delivery process is very much part and parcel of the way that
the Company does business. The Home Depot then can sustain its competitive
advantage in the appropriability of its service delivery.
· Durability (-)
Unless
The Home Depot institutes better quality training programs in customer service
for its employees, the rate of depreciation of the Company’s key human
resource will greatly accelerate. Excellent service needs to be carefully
reviewed and monitored for constant improvements in order for the level to be
maintained. The Home Depot does not really have a competitive advantage in good
service anymore; the competition is at par with the Company and in Sears’
case, its service level has even succeeded in overtaking The Home Depot’s
service levels.
· Transferability (+)
To
a large extent, part of The Home Depot’s competitive advantage in the service
delivery process is the wide assortment of products and service offerings that
the Company has created to meet customers’ needs. Because the Company seems to
be offering a product (e.g. Villagers Hardware, Expo Design Center, etc.)
tailored for all sorts of market niches, this strategy affects the
competition’s ability to enter the market and its attempts to level the
playing field with The Home Depot.
· Replicability (-)
It
is questionable whether The Home Depot will be able to sustain its competitive
advantage in this core competency. While The Home Depot excels with the variety
of its product selection and offers such service offerings as 24-hour delivery
to the customers’ homes, the Company’s in-store service is already beginning
to suffer in comparison to competition such as Sears, or is only equal to that
of Lowe’s. It is evident that the competition has realized that this core
competency is something that they can quickly emulate in order to steal market
share from The Home Depot, by hiring key people, providing extensive product
knowledge and customer service training, and providing better in-store signage.
Competitive
Expansion
· Appropriability(+)
The
Home Depot has been quick to seize opportunities for expansion, not only in new
areas of business in which its core resources and core competencies have been
optimized such as in the launch of Villager Hardware Stores and Expo Design
Centers but also in the opening of new stores in overseas markets.
More than its financial might, The Home Depot has been adept at utilizing
its industry experience and expansive market knowledge – knowing what its
customers want when they want it – in growing opportunities for its business.
Expansion in the right areas of business, or the right markets, at the right
time, seems to be a competency that is intrinsic to the Company’s
organizational processes.
· Durability (-)
The
competitive advantage in expanding the number of store locations is not
sustainable as these physical assets have a specific rate of depreciation and
would thereby have a limited life span.
· Transferability (+)
The
Home Depot’s competitive advantage in transferability of expansion is clearly
sustainable. The extent to which The Home Depot expands in new markets, whether
in domestic or overseas locations, or in new product offerings, such as in
regular neighborhood hardware stores, would greatly impact the expansion
strategy of its competitors as well as the business of existing players in that
category.
· Replicability (+)
Given
that none of its existing competition currently has the financial capability to
embark on an aggressive expansion campaign, it is a foregone conclusion that The
Home Depot has a sustainable competitive advantage in this core competency.
Do-It-Yourself
Experience
· Appropriability (+)
The
Home Depot practically created the home improvement do-it-yourselfers target
market or subculture when the Company pioneered the concept of home improvement
warehouse-style retailing. The Company has attempted to optimize the DIY
shopping experience by embedding the experience into its organizational
processes and service procedures.
· Durability (+)
The
DIY experience at The Home Depot has virtually no limit to its life span and
does not depreciate.
· Transferability (-)
The
Home Depot’s DIY experience does not necessarily adversely affect the
competition’s ability to offer a similar shopping experience at any of its
competition.
· Replicability (-)
This
core competency relies heavily on excellent in-store service and easy navigation
of the stores, areas which The Home Depot is now finding difficult to sustain,
given its size and rate of growth. The competition, realizing this fact, are
quick to grasp that this competency is not that durable and can easily be
transferable. Sears and Lowe’s
are both matching, if not exceeding the DIY experience being offered at The Home
Depot stores.
Make
your final selection of Core Competencies which meet the criteria in 9.2 and
provide most sustainable advantages.
The
two core competencies, Service Delivery Process and DIY Experience, both have
the most impactful contributions to
the selected Customer Value Factors: Service Quality and Selection and
Availability.
Service
Delivery Process (2.02) , followed by Competitive Expansion (1.14) and DIY
Experience (1.14), provide the best
value/cost efficiency ratios.
By
increasing its focus on Service Delivery Process and the DIY experience, The
Home Depot can sustain its competitive edge and maximize its resources to
improve its over-all core competencies in the most cost-effective way possible.
9.4 Select Those Core Resources Which:
Contribute most value and least cost to the selected core competencies.
|
|
Service
Delivery Process |
Competitive
Expansion |
DIY
Experience |
Total |
|
Personnel |
9 |
1 |
9 |
10 |
|
Company
size |
3 |
9 |
1 |
12 |
|
Name
Recognition |
3 |
3 |
9 |
6 |
|
Financial
Strength |
1 |
9 |
1 |
10 |
Service
Delivery Processes -
The core resource that contributes the most value and least cost is personnel.
How personnel is used as raw labor to provide service to the customers,
has a largest impact on the overall delivery of service.
Competitive
Expansion
– The core resource that contributes the most value and the least cost is
financial strength.
It is a critical component in Home Depot’s capability to expand in the
best strategic fashion than its competitors.
Company size is also a very important core resource in competitive
expansion. The
high number of stores in a particular area can greatly affect Home Depot’s
competitive advantage over its competitors.
Need most improvement relative to competitors’ Competitive Core Resource Comparison Scores.
|
|
Distribution
and Logistics |
Service
Delivery Processes |
Competitive
Expansion |
DIY
Experience |
|
Lowe’s |
10 |
24 |
18 |
27 |
|
Sears
Hardware |
10 |
25 |
19 |
28 |
|
Menard’s |
8 |
19 |
15 |
22 |
|
Home
Depot |
10 |
24 |
18 |
27 |
9.5
Summarize your recommendation by defining those Core Competencies and Core
Resources which form the basis for the Competitive Strategy
|
|
Distribution |
Service
Delivery Process |
Competitive
Expansion |
DIY
Experience |
|
CC
Value |
|
+ |
|
+ |
|
CR
Value/Cost |
|
+ |
|
|
·
Service
Delivery Process
DIY
Experience
The
Customer Value Factor that is most impacted by these Core Competencies is:
Quality
of service is the single most important factor in DIY customers’ minds.
Although Home Depot and most of its main competitors deliver a ‘good’ level
of service, there is room for improvement and differentiation.
Core
Resources Value/Cost contributing to Service Delivery Process:
Core
Resources Value/Cost contributing to creating the DIY Experience:
Ø
Personnel
(9)
·
Name
Recognition (9)
9.5
Test your strategy recommendation by providing an alternative recommendation for
improving customer value factors
Competitive
Core Competency alternative:
Although
Competitive Expansion only has a moderate impact on customer value factors, (3
for Service Quality, 3 for Quality of Products, 3 for Selection and
availability, 1 for Getting around the Store) it was chosen over Distribution
Logistics as an alternate recommendation because of its higher Core Competency
Value/Cost Efficiency.
Improve
the process for researching and selecting suitable sites for future Home Depot
outlets.
Accelerate current domestic and international expansion plans by 50%, by
planning the opening of an additional 450 stores over the current plan for 900
over the next four years.
Consider acquiring a smaller regional chain of DIY outlets and converting them
to Home Depot, Villager, or Expo stores.
Explore the possibility of forming a strategic alliance with foreign DIY chains
in order to accelerate international expansion.
Accelerate the development of www.HomeDepot.com
or consider a joint venture with an established E-retailer such as Amazon.com.
Competitive
Core Resource alternative:
Home
Depot enjoys a very high 95% score for competitive resource comparisons. This is
22% better than its nearest competitor, Sears Hardware. Apart from Personnel
(which is part of the primary recommendation), Company Size contributes the most
to customer value factors and is the alternate Core Resource recommendation.
Accelerate Home Depot’s current expansion plans in order to take bigger
advantages of economies of scale in the future. This will allow to Home Depot to
sell its products at even lower prices relative to its competitors.
Consider buying out a competitor such as Mernard’s or Lowes. This will have
the two-fold effect of expanding Home Depot’s size as well as eliminating a
major competitor.
1)
Improve Service Delivery Processes
2)
Maintain Competitive Resource Advantage.
Home
Depot is the largest retailer in the DIY Home Improvement Industry and has a
distinct advantage over its competitors in terms of Competitive Resources
derived from its size, financial strength, and name recognition. The overall
score for core resources (95%) is substantially higher than any of its
competitors and any future strategy should include maintaining this advantage.
Company Size
Continue to expand at the same or greater percentage rate than its competitors
in order to maintain company size advantage.
Continue to use extensive national and local media advertising campaigns in
order to out-promote the competition.
Financial
Strength
The
area where Home Depot can improve and differentiate the most is in its customer
service-related core competencies and core resources. As we said earlier,
service quality is the most important customer value factor in the DIY Home
Improvement industry. Although Home Depot has a 95% core resource score, the
core competency score is only 80%. Current DIY customer perception is that there
is little differentiation in customer service among the major DIY retailers.
This is a great opportunity for Home Depot to differentiate itself from its
competitors through a higher level of customer service. Customer service is not
only the most important customer value factor, but also has the highest
Value/Cost Efficiency of 2.02.
One
other area where Home Depot needs improvement is in getting around the store.
Home Depot received low scores on this customer value factor, which had a
negative impact on its core competency scores. This difficulty navigating Home
Depot stores detracted from the customers’ DIY experience and should be
corrected immediately.
Home Depot should improve its level of customer service and DIY shopping experience through:
Core Competencies:
Service
Delivery Processes
Improve current customer service personnel training. This can be accomplished by
instituting longer training periods and improved training programs.
Improve and enhance current reward/incentive systems to promote and sustain
higher levels of customer service.
DIY
Experience
Improve store layout so that customers do not have difficulty getting around.
Reduce the shelf heights so that customers can reach most items and do not have
to wait for large forklifts to bring down items.
Institute standardized signs for all aisles as opposed to hand written signs.
Lower shelves to make the atmosphere less intimidating.
Create more
distinguishable sections in the store layout
to make customer store navigation easier (Bathroom, Kitchen, etc).
Institute
a program to promote customer navigation assistance behavior by service
personnel.
Strategically locate service personnel or information booths throughout the
store so customer can conveniently ask for navigation assistance.
Core
Resources:
Improve personnel selection process to find the right people for customer
service positions.
Consider instituting advanced personality tests (such as Briggs Meyers) in order
to match suitable personality
types with customer service positions.
