Home Depot, Amazon, Walmart and UPS or FEMA: Who Is the Real Cavalry?

August 31, 2011

On Tuesday morning, Jim Cantore of the Weather Channel was reporting on the devastation to Vermont from Hurricane Irene. He ended his report by saying the cavalry is finally on its way in the form of thirty large FEMA (Federal Emergency Management Agency) trucks with food, water, and generators.

Indeed, parts of New England have suffered from devastating floods, and some families have lost their homes. But who is the real cavalry? Are Vermonters really dependent on FEMA for food and water? (Notice, that not FEMA but the Vermont National Guard is flying helicopters into towns stranded by washed-out roads.)

Last Wednesday the news reports about Hurricane Irene became very alarming. The potential devastation from the storm over a wide area was terrifying. Living in a sparsely populated rural area as I do, I understood that if our power went out, along with millions of others, we would likely be at the end of the queue for power restoration. My family was simply not prepared for a power outage that had the potential to last for a week or two.

So, on Wednesday, the first thing I did was shop at Amazon. I’m an Amazon Prime customer and anything I ordered would arrive by Friday at no shipping charge. I ordered LED lanterns, a portable battery powered phone charger, cases of canned, natural foods, and five gallon water containers. (We are on well water; if the power goes out we have no water pump.)  This bounty was available at prices equal to or less than the prices in retail stores.

On Thursday, I shopped at Walmart, loading our van with ten cases of water and an ample supply of batteries. No one had to tell the Walmart team that batteries and water were going to be in demand. I could hear the walkie-talkies of Walmart associates crackle as they diligently worked to place supplies strategically all over the store.

On Friday, UPS arrived and unloaded all of my Amazon merchandise. My wife and I then turned our attention to securing our property. Fortunately, we suffered nothing more than a 24-hour power outage, tree damage, and erosion as fast flowing water washed over the road and found its channel in our yard.

It was not just Walmart, Amazon, and UPS that worked heroically to prepare Americans for Irene. Watch this short video about Home Depot’s command center as they stocked their stores in preparation. Indeed, all through New England, Walmart and Home Depot stores were fully stocked and ready sources of needed supplies. Admittedly, this is small comfort to those who suffered the biggest losses; but FEMA has already announced that it has no available funds for rebuilding flooded roads, damaged schools, etc.

To those who believe that government is the entity that will solve their problems, it is counterintuitive that, compared to FEMA,  Walmart, Home Depot, Amazon and UPS do a better job in preparing for a disaster as well as the aftermath of a disaster. Walmart, Home Depot, Amazon, and UPS are driven by profits, while it is said that FEMA employees are motivated by public service. Some might reason that those motivated by public service must be more caring and responsive than those motivated by profits.

Indeed, many FEMA employees may be motivated to serve their fellow Americans; but clearly, others among FEMA’s ranks are not. They are motivated by career advancement, power, and money. The image of the incompetent and shallow Michael Brown, director of FEMA, bumbling during Hurricane Katrina is a lasting one.

But can any director of FEMA be competent? Of course, a person in that position may be competent and caring. But, even then, would he or she be have the motivation, knowledge, or capacity to balance all of the competing human needs that arise in face of a disaster?

During the Nazi siege of Leningrad, the population of the city endured hell on earth. In 1941, as the Nazi’s closed their circle around the city, what did Communist Party chief of the city, Andrei Zhdanov, do? Did he work tirelessly around the clock to bring in needed food supplies before the circle closed? No. He worked tirelessly around the clock to arrest “spys.” A spy was defined as anyone who spoke a foreign language or had a foreign connection. Spies were often harmless senior citizens, but Zhdanov was doing the job that seemed important to him, rather than the job that was needed. And, he was very efficient at performing this terrible deed.

Admittedly, this is an extreme example; but it illustrates a point. What a bureaucracy thinks is needed and what is really needed can be two different things. In contrast, the goal of earning profits in a competitive market is what compels Walmart, Home Depot, Amazon, and UPS to deploy the energy of their employees towards what is really needed. Walmart, Home Depot, Amazon, and UPS earn money only when customers voluntarily purchase goods and services from them. Thus, their employees are benevolent towards people they have never met because it is in the self-interest of their organizations. And, it is also true that self-interest is joined by genuine feelings of goodwill as two parties interact in non-coercive trades.

In contrast, FEMA exists in a coercive relationship with American citizens. They earn their revenue in a political way; and FEMA’s success does not depend on pleasing American citizens. Indeed, like the public school system, the more their efforts fall short or outright fail, the more FEMA can argue it needs more tax revenue.

In short, no matter how efficiently FEMA uses tax money, no matter how caring FEMA employees are as a hand out water off the back of a truck to long lines of people, because FEMA is not subject to the discipline of the market, they will never match the operational efficiency and genuine caring of the employees of Home Depot, Amazon, Walmart and UPS.

To Mr. Cantore, I say, if New Englanders were truly dependent on FEMA, the cavalry would have been too little and too late.

Bob Nardelli Wants To Sell You a Chrysler: Just Walk on By

August 9, 2007

Given his record at Home Depot, one would have thought that Bob Nardelli would have had trouble getting hired as CEO of any major corporation. But, as we examine his record at Home Depot, it is not surprising he found a home as CEO at Chrysler. After all Chrysler has a history of poor labor relations, shoddy products, and eroding market share.

There have been many articles in the business press, speculating as to whether Nardelli will help turn around Chrysler. I can give you the short answer—no. In a competitive market you don’t succeed by screwing your employees and customers. The only way to turn around Chrysler, or for that matter any firm that has to compete in a free-market, is to improve relations with both customers and employees. Given his track record at Home Depot, Nardelli is very unlikely to complete this mission.

Home Depot, was founded by Arthur Blank and Bernard Marcus. Both believed in a decentralized corporate culture where individual stores had wide autonomy. Both founders believed in hiring high-paid, full time employees with experience as plumbers, electricians, painters, etc. The result was a fast growing chain known for customer service.

In 2000 Arthur Blank retired and was replaced by Bob Nardelli. Nardelli saw himself as an old-school authoritarian leader and set-out to replace Home Depot’s decentralized structure which he saw as a “cowboy culture.” Senior executives quit, according to the Wall Street Journal, slighted by Nardelli’s “micromanagement and disdain for some of the company’s existing practices.”

As authoritarian leaders usually do, Nardelli managed to alienate both customers and employees. To save money Nardelli replaced full-time workers experienced in the building trades with inexperienced part-time workers. Unlike the founders who were comfortable visiting stores and personally tutoring employees on customer service, Nardelli was uncomfortable interacting with front-line employees. The result of all of this was a steady increase in complaints about customer service and deterioration in market position.

Nardelli was finally fired in January, 2007. Over his tenure Home Depot’s stock value fell 9% while rival Lowe’s had risen 188%. Nardelli was given an exit package of $210 million; this was in addition to the $240 million he had been paid over his tenure.

What I find astonishing about the Home Depot case is that Nardelli was initially hired by a board that had either no knowledge of, or no respect for, the principles and beliefs that were responsible for Home Depot’s rise to prominence.

The result of Nardelli’s tenure at Home Depot was a wrecked corporate culture. Once a corporate culture is wrecked, one doesn’t get to say, “Sorry! Let’s start again.” The culture has to be rebuilt, interaction by interaction, decision by decision. This is a time consuming process and involves examining fundamental beliefs about leadership.

At Home Depot, all that Nardelli had to do was be a steward of the successful principles of the company founders. He failed at that miserably. At Chrysler his job will be far tougher.

When you buy a car, you want to buy from a company that wants to earn your long-term business by building a safe and dependable vehicle. Given what Nardelli thought was important at Home Depot, he is unlikely to be thinking about Chrysler’s consumers. And you should not be thinking about buying his cars.

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