Bob Nardelli is Watching

Like most former GE executives, Nardelli is obsessed with talent. So he was astounded to realize that there was no organized recruiting and retention system at his new company. In fact, there wasn't even a head of human resources. "Talk about shocking moments," says Nardelli. "It would be like trying to run NASA without a head engineer." The changes here have been radical: 98% of Home Depot's top three layers of management are in new positions since April 2001, and 56% of them are new to the company. Donovan enters Nardelli's office holding a thick binder detailing the company's HR strategy for 2006. It's of critical interest to the CEO, who personally interviews every officer candidate and signs off on many senior hires. "If we don't select right," he says, "what we create is a dislocation and a distraction."

Also critical is the ability to develop great performers. The meeting that follows covers an alphabet soup of training and development programs and rigorous talent assessments. Home Depot has created hiring programs for retirees, Hispanics, and military officers. For established high performers, there's the Accelerated Leadership Program. Others include the Business Leadership Program for MBAs and the Store Leadership Program for new hires with some leadership experience. Many in this last group--529 so far--are ex-junior military officers, a talent pool that Nardelli first tapped at GE. With so much training, it's hard to see how employees manage to actually work. But Donovan and Nardelli insist that increased sales and lower turnover prove the strategy.

The Commander-in-Chief

11:00 a.m. / Wednesday
Crisis Management Command Center, corporate headquarters

This morning, Home Depot is recovering from one disaster while preparing for another. That's not as hard as it might be, because Nardelli has made a science of disaster recovery by opening the command center, using three years of data collected after hurricanes. It is a comprehensive system that determines which stores should close when, what to do with displaced employees, and how to stage recovery supplies. The company was able to get all but two of the eight stores severely damaged by Hurricane Katrina up and running within a week (the others remain underwater).

Nardelli walks into the gray, windowless room, eager for a briefing on Hurricane Rita. "How're we doin'?" he asks, greeting those he knows by name. David Whatley, Home Depot's VP for risk management, shows him the map of Texas, with pushpins representing the 41 stores potentially in Rita's way. Bob Puzon, senior director of operations, shows him the phone banks of employees talking to suppliers about cranking up production of key items. Nardelli gazes at the five television screens transmitting the Weather Channel, news, and HDTV tuned to a Houston-area store that has just sold 272 generators. Here, Nardelli works to shore up morale, aware that his presence may be a distraction at a stressful time.

The Salesman

3:30 p.m. / Wednesday
Home Depot's top-secret Innovation Center, Atlanta

The brick building, somewhere in Atlanta, could be any old warehouse. But inside, behind tight security, are the top-secret new products being tested by focus groups and by Home Depot's top merchants. The center, modeled on Procter & Gamble's, opened in 2004.

Watching him tour the center is like watching a hen with a brood of chicks. As he moves from lighting to tiles with the same awe he once showed for turbines at GE, it's worth remembering how much flak Nardelli took for his lack of retail experience. He gloats over a line of appliances and caresses the blades of a ceiling fan. "Just look at the richness and presentations," he exults. But Nardelli is not merely preening; he is also constantly probing, quizzing merchandisers on their plans for power tools and showerheads. He also can't help trying to create a new customer. "Wouldn't you love to have that patio furniture?" he asks. I say that I need a patio first. "We're gonna sell you something before you get out of here," he promises.

Although most of Nardelli's promises have come true, with the real estate market showing signs of stress, some analysts worry about Home Depot's vulnerability to a cyclical downturn in housing and the continuing strength of Lowe's. Nardelli says that the strategy he laid out five years ago remains on track and that, if executed correctly, the opportunities are virtually limitless.

Regardless of what happens next, Nardelli has expertly wielded the diverse tools of modern leadership to work a renovation from the joists out. "He did everything we thought he would do," says Bernie Marcus. "The results are good and profits have been good. This is now his company." Bob Nardelli is truly home at last. nFC

Jennifer Reingold (jreingold@fastcompany.com) is a Fast Company senior writer.