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Chief Change Officer Measuring Up

September 21, 2006
Related Topics: Compensation Design and Communication, Featured Article, Benefits
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When most human resources executives talk about their achievements, they might describe a new talent management system they imple- mented or a compensation program they designed. Dennis Donovan is proud of his work in these areas as well.

    But when asked which past accomplishments he is most proud of, Donovan talks about how he worked closely with other executives at his former employers General Electric and Raytheon to grow the companies.

    He describes how, as vice president of human resources at GE Power Systems, he worked with Robert Nardelli, who was then president and CEO of the division, helping to "take a $5 billion company to $20 billion in five years" through acquisitions and organic growth.

    "We moved GE from a power delivery company to an energy services company," he says. "That transformation expanded our scope of business and the types of companies we would acquire."

    When Donovan talks about his time as senior vice president of human resources at Raytheon, he describes how he and the management team "redefined the metrics being used" to assess the entire business.

    In other words, he sounds more like a CEO than a head of human resources.

    And that’s why Donovan, executive vice president of human resources at Home Depot, is the highest-paid HR executive of a publicly traded company in the country—making $6.6 million in 2005.

    Unlike many HR executives who feel left out of strategic business discussions, Donovan acts as the right-hand man to Nardelli, CEO of Home Depot, who brought Donovan on in 2001.

    Donovan’s responsibilities cover all aspects of workforce management for Home Depot’s more than 355,000 associates. Since he arrived, Donovan has established huge recruiting partnerships to make sure the home improvement retailer has ongoing access to talent. For example, in February 2004, Home Depot signed an agreement with AARP to attract and retain older workers.

    Also in 2004, he formed a partnership with the Department of Defense, the Department of Labor and the Department of Veterans Affairs to start Operation Career Front, a program to provide career opportunities to military personnel. Although Home Depot won’t say how many service members have been hired under that particular program, it says it has hired 43,000 veterans since 2003.

    Then last year, Home Depot formed hiring alliances with four national Hispanic organizations: the Aspira Association, the Hispanic Association of College and Universities, the National Council of La Raza and SER-Jobs for Progress National. These partnerships have helped the company continually reduce turnover during the past five years, although Home Depot won’t disclose exact figures.

    For Donovan, these hiring partnerships not only provide Home Depot with sources of talent, but they allow the retailer to make other business inroads. For example, in December 2004 the company established a merchandising deal with AARP that revolved around in-store clinics, grandparent/ grandchild workshops in stores and other marketing materials focused on older customers.

    "We are leveraging HR for our other businesses," Donovan says.

    But his work is not done. Last month, Home Depot announced that sales at stores open at least a year fell by two-tenths of a percent, the first such decline in more than three years. The company also warned that profit and sales for the year would be at the low end of its forecasts.

    Donovan declined to talk about his compensation, but he did recently speak to Workforce Management staff writer Jessica Marquez about his views on the role of HR, what it’s like to work with Nardelli and the ongoing challenges that Home Depot faces.

    Workforce Management: How did Bob Nardelli approach you for the job at Home Depot?
    Dennis Donovan: Bob and I stayed close even after I left GE. After he didn’t get Jack Welch’s job as CEO, we talked a lot about what he would do next. When he landed at Home Depot, the HR position had been open for some time. Bob was always someone who recognized the value of HR within an organization. And so he came to me about it, and I said no. Things were going well in Boston at Raytheon, so I gave him some names of people I thought were good. And we continued to talk on the phone and kept in touch.

    Then a few weeks later, I was on vacation with my wife in Puerto Rico and I decided to give him a call to see how he was doing. It was late on a Friday night and I didn’t have his number with me, so I was going to call his office and see if someone in security could give me his home phone number. But he answered the phone. And I said, "What’re you doing there this late?" And his reply was, "Your job." That’s when I knew I had to help him.

    WM: What were your first challenges when you started at Home Depot?
    Donovan: On my first day, Bob said three things to me. First, he said, "Thanks for coming." Second, he said, "You have to pitch the executive committee today, I forgot to tell you." When I asked him what I was supposed to say, he responded, "You have between now and 1 p.m. to figure it out."

    The third thing he told me was that the company had been talking about the need to centralize the merchandising business, and that I had 90 days to do it. So I quickly put together a PowerPoint presentation for the board about what I hoped to do at Home Depot. I talked about how this was a company that needed to significantly transform. The business had been pretty decentralized and autonomous, and we needed to change that to get scale and continue to grow.

    When that was done, we created a cross-functional team of eight to 10 people throughout the company to come up with a plan for the merchandising business.

    WM: Up until that point, Home Depot’s merchandising business was made up of nine divisional offices, each of which operated independently and had different pricing agreements with suppliers. Centralizing this business made sense, but how did you get the heads of all these divisions to agree to how it should be done?
    Donovan: We had to explain the inefficiencies of what was going on and listen to their ideas and work to get their support. Getting the acceptance of the group was critical.

    We spent the first three months looking at the roles and responsibilities and what it would take to do this massive consolidation. We realized it was going to be the biggest change in the history of the company. I announced that I wanted to get everyone together in one room. So after that pre-work, we set a date—July 30, 2001—for what we called Super Saturday, where the leadership team and all of the presidents of each of the divisions, along with their heads of HR and some finance and organizational people, sat down in a room to create the new business. It was 60 people in total. And our goal was to have the new division established by the end of the day. We hoped by having them all participate, we could get them to commit to the new business model.

    WM: That sounds terrifying. How did it go?
    Donovan: It started at 8 a.m. and lasted until 3:30—it actually ended a half an hour early. I told them everything had to be decided that day because we were announcing the new business the following Monday. The idea was to move quickly and with agility. That is our competitive advantage. The first three hours were spent getting everyone to agree on how the business would function.

    Then we started building the division. We had more than 100 résumés of Home Depot associates. On the back wall of the room, we posted their names on a board. On the front was our new organizational chart of what the new merchandising organization would be. On the side wall was the new field structure. We came up with three names for each position on the front wall and then discussed who the best person was for that job. Once we decided on a person, whoever knew that person best picked up the phone and called them to offer the job. We had pre-approved compensation packages so that we could overnight them their compensation packages. Once they accepted, we put a big gold star next to their name. Within three and a half hours we had appointed 29 new officers. Hundreds of field positions were filled the same way. The whole day was a mix between a love-in and a food fight.

    WM: Why was speed so essential with that process?
    Donovan: Super Saturday is an illustration of how you can use innovation and speed to win the acceptance of people who participate in the process. Whenever you are looking at large-scale change you need a structure for that change and a process in place. Today, whenever we go through a restructuring, we go through a similar type of process, although we don’t call it Super Saturday. I knew this approach was successful when a long-term Home Depot person said to me, "It would have taken us a year to come to this discussion and make these decisions."

    WM: How does your approach to workforce management differ from a more traditional approach?
    Donovan: If people ask me what does HR do, I say there are two basic things. One is you put in a process for change and you populate that process with high-impact initiatives. Some people have titles like chief human resources officer or chief human capital officer. I think of it as a chief change officer. HR is integral to bringing on change and transforming the business according to various metrics.

    When I was at GE, I would spend time with GE customers and ask them questions about what they really do in their jobs. And eventually they would say that their job was to bring on successful change within their organizations. But when I asked them if they had a process in place to implement that change, they would all say no.

    It doesn’t matter what kind of organization you have. Whenever there is a change, anxiety is normally high. People want to know what you want them doing. You need to get in front of your people and show them the plan for your design. It’s like when you build a house, you want to show the people doing the building what the layout of the foundation is going to be. The most important part of change architecture is letting people connect the dots.

    Shortly after I started at Home Depot, I got in front of every store manager and district manager to cover the change management process so that people could visually see how this would all come together. The creation of the merchandising business went so smoothly because we had that buy-in.

    WM: How do you know when an organization needs to change?
    Donovan: At Home Depot, change isn’t dictated by me or Nardelli. We need to look at the industry and at what our competitors and suppliers are doing. When we were making all sorts of changes to centralize the organization, at one point someone asked Nardelli if we could take a few things slower to make sure that everything worked out. His response was, "Sure, I’ll call Lowe’s and ask them to slow down."

    The other part of the change equation is sharing metrics. For HR, that means creating a performance management system that is aligned around the organization’s goals. How do you get accountability in an organization? That’s often where organizations fall down. You can’t achieve accountability without metrics.

    WM: Some of Home Depot’s critics might argue that there isn’t real accountability at Home Depot. They point to Nardelli’s compensation as a sign of this. Nardelli has made more than $245 million in compensation in his five years as CEO, as the company’s stock declined 12 percent. How do you justify that?
    Donovan: This is a company that in five years—five very tough years given 9/11 and everything else that has gone on—has moved from $45 billion to $81 billion. It took 22 years to get to $45 billion, and in less than six years we have doubled the size of the company (based on an estimate of reaching $90 billion this year).

    We have more than doubled earnings per share. Dividends to share owners have jumped to 60 cents from 15 cents, and this is a business that needed major transformation. We have taken store count from 1,200 to over 2,200, and we have created a building supply company with over 900 branch offices. We have done 38 acquisitions in the last two years. Around 90 percent of acquisitions fail to meet pro forma, but all 38 of ours have met or exceeded pro forma. We have added over 120,000 new net jobs to Home Depot. So when critics talk about lack of accountability, we say, "Let’s look at the results."

    WM: What are you doing as head of HR to help Home Depot get into the building supply business?
    Donovan: I have a lot of my team working on our inorganic growth. Most HR organizations get involved in acquisitions in the later stage, but we are involved as part of the pre-due diligence. That’s important because we can help shape the targets. In March, we made our biggest acquisition yet with the purchase of Hughes Supply, a $6 billion company. The first thing we did there was we went to Orlando, where Hughes is based, and met with the CEO and chief financial officer and talked about talent, because talent is going to be the business. We looked at the board structure, we looked at all of the staffing processes and performance management as well as their reward structures. We looked at how they handled their HR management and what they do with career development and learning systems. Then we moved quickly and started doing assessments of the talent. Determining where the synergies are is crucial to making all of our acquisitions successful.

    WM: What is your greatest challenge today?
    Donovan: We can never get enough talent into the organization. I am constantly trying to enhance the talent base within Home Depot. I want to move faster. I brought in 900 HR professionals from April 2001 through January 2002. I hired 800 of those within 12 weeks. We move very quickly, but I wished I moved faster.

Workforce Management, September 11, 2006, pp. 16-18 -- Subscribe Now!

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