This paper will explain the element of environmental scanning and describe the internal and external environment of Home Depot; summarizing the competitive advantages and current strategies they employ. The strategic management process has four different components: Environmental scanning, strategy formulation, strategy implementation, and evaluation and control. “Before an organization can begin strategy formulation, it must scan the external environment to identify possible opportunities and threats and its internal environment for strengths and weaknesses” (Wheeled & Hunger, 2010).
A SOOT analysis is an effective tool for organizing these factors.
The internal factor of environmental scanning consists of a company’s strengths and weaknesses. An easy way to analyze these factors is to create an Internal Factor Analysis Summary, (BIAS) table [see Exhibit 2] or BRIO framework (Value, Rareness, Immutability, and Organization). Where the internal environment deals with strengths and weaknesses, the external environment is about opportunities and threats. These factors can be analyzed using a STEEP Analysis or PESTLE Analysis [see Exhibit 3].
When scanning the external environment, many variables need to be considered; natural environment, societal environment, task environment, and industry analysis.
The natural environment consists of wildlife, weather, and other resources that from nature that can be used to satisfy our wants and needs. There are four factors included in the societal environment scanning process: economic forces, technological forces, political-legal forces, and socio-cultural forces. These factors can affect long-term decisions made by the company. Task environment includes the stakeholders and is within the industry.
Industry analysis is the in-depth examination of the natural, societal, and task environments.
HOME DEPOT SOOT ANALYSIS (see Exhibit 1) STRENGTHS Home Depot is the world’s largest do-it-yourself home improvement retailer, making them a common household name. There are more than 2,200 locations in four different countries. Having such dominance in the DID market enhances their brand awareness. “The Home Depot developed strategic product alliances directly with industry-leading manufactures to deliver the most exclusive assortments to customers” (The Home Depot USA Inc. 2012).
Many top of the line product names are sold at Home Depot. Their employees are put through a very thorough product knowledge training, which includes cross-training for other departments. This knowledge allows them to teach free classes about home improvement to customers in their free How-To-Clinics, offered at every store on Saturday and Sunday. Undertaking home improvements or remodeling is cheaper than hiring a contractor or handy man. To help save customers money, Home Depot offers guaranteed low prices. If it can be found cheaper somewhere else, they will match that price.
The company generates enough revenue to stay on top of technological advances. They spent $60 million in 2010 on new hand-held devices that will help employees stock shelves, access inventory, check out customers from nap. Where in the store, and many more helpful capabilities. WEAKNESSES Some of the bigger products sold at Home Depot are too expensive for the customers to buy, especially when they will use the product only a few times. Employees who have a “l don’t care” attitude do not pay attention during training and are not able to accommodate customer needs.
The turnover rate or Home Depot is very high and very expensive. OPPORTUNITIES Many opportunities are available for Home Depot in attaining the attention of customers in other markets. They are considering seeking the professional business customer market. Expanding to new countries could be a huge move for the company. The market of home improvements is not going anywhere, leaving a wide opportunity for Home Depot. THREATS When the economy is low, customers do not spend as much money, especially on home improvements.
A decrease in the housing market and competition from Loses, or a new company, pose a big threat to Home Depot. PESTLE Analysis This analysis organizes the political, economic, social, technological, environmental, and legal environments of Home Depot. POLITICAL Home Depot knows that the actions in politics affect daily business operations. They actively participate in the political processes and encourage employees to do the same. The company has a Political Activity and Government Relations Policy that sets the standards for participation in the political process.
ECONOMIC The Home Depot Foundation is a charitable organization that provides resources to help improving, repairing, and refurbishing homes. Volunteer employees help communities by partnering with nonprofit organizations to enhance the lives of those in need. The foundation also helps veterans who face financial and physical hardships. They have donated $80 million to this cause. Lastly, the foundation awards community impact grants once a year. SOCIAL Home Depot is dedicated to making communities around the world better.
They have launched many social campaigns that promote education, safety, and job assurance. The Foundation has volunteers that help teach and build within local communities. TECHNOLOGY Technology has a significant role in the success of a business. Home Depot is able to spend millions of dollars updating their technology by turning their resources in capabilities. Staying current with the latest technology available keeps the company on top ahead of their competition. LEGAL Home Depot follows all laws administered by the state and Federal governments.
The company adheres to a business code of conduct and ethics, corporate governance guidelines, political activity, and a government relations policy. Following these procedures guides the company in making good and legal decisions. ENVIRONMENTAL Home Depot is “dedicated to making communities a better place for enervation to come” (The Home Depot USA Inc, 2012). The company follows a set of environmental principles that promote resource conservation, responsible packaging, and much more. Providing sustainability leadership, Home Depot is committed to reducing greenhouse gas emissions and lowering their carbon footprint.
COMPETITION Home Depot’s main competition in the home improvement market is Loses, Sears, and Ace Hardware. Product pricing is a big factor in competition. Part of the company’s competitive strategy is to guarantee low prices. This strategy effectively brings in customers to price match. Another strategy is to have well-trained employees, from management to cashiers. Home Depot outranks all competitors by using their bargaining power against suppliers, and staying on top of the latest technology, allowing the stores to Offer low priced merchandise.