Online Extra: The Drill at Home Depot

CEO Robert Nardelli has a tool for instilling his values: His growing battalion of ex-military people

Home Depot (HD ) has never been a company for the faint of heart. Always passionate and driven to succeed, it was the youngest company ever to reach $40 billion in revenues in 1979 -- just 20 years after Bernie Marcus and Arthur Blank founded the firm. But these days, there's something tougher going on at Home Depot. Hard-charging Chief Executive Robert L. Nardelli has upped the ante in his bid to transform the company into an industrial juggernaut running stores, serving contractors, even selling gasoline.

To get there, Nardelli is practically turning the old Home Depot inside out. He's invested more than $4 billion to buy 35 companies that serve professional contractors and repairmen. Of the top 170 executives, 98% are new to their positions since he took over five years ago.

A driven manager himself, he demands intense loyalty and attention to detail from his staff. And to ensure the "laser execution" that he wants in Home Depot's stores, he's hired some 43,000 former military personnel in the last three years.

Nardelli, Home Depot's own general, according to some of his staff, sat down with BusinessWeek correspondent Brian Grow to discuss the influx of military at his outfit and how the changes he has wrought at Home Depot are affecting its corporate culture. Here are edited excerpts of the conversation:

There has been a substantial influx of military personnel at Home Depot. What's the strategy behind it?

Well, it's rooted in history. I started this initiative back in Erie, Pa, when I was with General Electric (GE ). I was having a tough time getting graduate engineers. We went out and got 10 or 12 junior military officers and we started this program. I think Jack Welch recognizes it in one of his books, giving me credit, and then Jack latched onto it and GE started it in a much bigger, meaningful way.

Jack Welch calls you the greatest patriot he ever met. What in your personal background creates this affinity between you and military personnel?

I was in ROTC in high school. You could either take gym class or ROTC. As an athlete I had all the gym I needed. I didn't need a third or fourth shower during the day. So I started in ROTC as a freshman and enjoyed the hell out of it.

I became company commander and we won a ton of awards for best drills, best citizens, etc. I was on the rifle team. I enjoyed the rigor of it. I enjoyed learning the heritage, the history. I applied to West Point and, unfortunately, didn't have the legislative connections you needed back then.

When did it dawn on you that the military was a pool of talent that you should tap?

I've always held in high regard the military academies for pretty rigorous curriculum. I knew to get into an academy it was not only intellect but character, having gone through that myself. These are men and women who go through a rigorous four years, then they come out and serve our country, and then some elect to stay.

There's kind of a quid pro quo -- they served us, allowing us to do what we do here, and with the right profile, skill set and mix, we ought to try to reach out to them.

If you talk to anyone in the military, they will tell you they're only as good as their people. [We] wouldn't go to 100% (ex-military), but they bring a set of standards, they bring a culture, emotions, just like you have this other set of Olympians that are in our stores. These are men and women who have demonstrated their ability to lead, their ability to comprehend, the importance of execution.

Why are we seeing high turnover among officers of Home Depot at this stage in your tenure?

It's an easy question to answer and at times the most emotional question to answer. In some cases, the people that work for us outgrow us. Then there's the category where the business has outgrown them, and that's the toughest call. If you ever take one of those lightly, you ought not to be in this job, because you are affecting that individual's life.

I think the cruelest thing would be to let somebody hang around with false expectations. I think you don't pass the snicker test, people know -- the majority of the organization will snicker and say, "Why are they keeping this person around?" or "How did that person get promoted?"

Some people have used the phrase "culture of fear" to describe Home Depot today. Is your management philosophy that it's healthy to have people running scared because it keeps them on their toes?

I absolutely do not support an environment of fear. I totally support an environment of raising the bar, of setting high expectations and expecting people to deliver. Fear is a detractor.

The only reason you should be fearful is if you personally don't want to make the commitment or there's a bolt of reality that you're in a position based on the growth of the company that you can't deliver on those commitments. That creates internal fear. Internal fear of the associate is not an environment of fear. Those are two very, very different things.

What is your mission? Do you want this company to be bigger than GE?

My comparison is not with GE. My comparison is: Have I created an environment and a culture that allows each of us individually and all of us collectively to amass and realize the full potential of what we have? I could have sat here and turned this into a cash cow, stopped building stores, run the stores for cash, not cannibalized. Same-store sales would have been higher. [We could] take the cash, buy stock, increase dividends.

Except I think I had a higher calling, I had a higher mission, and that's to make sure that the people who follow me have a stronger enterprise than the one I found. And that's not being critical of what I was entrusted with. It was a great business, tremendous heritage, great platform. But when I came here, I felt my discussion with the board was to make this bigger, better, for longer.

When is the stock going to break out?

I don't know. I don't control it. As I said at the analysts' meeting, I think we've done a respectable job of controlling our numbers. It's now up to you [the analysts] and the others to control yours, and I don't mean that sarcastically....

Look, I'm running this company with the board and the staff, and I think the numbers speak for themselves. I would challenge you to look at any company that has delivered this kind of performance.

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