Home Depot Environmental Analysis

Home Depot Environmental Analysis

Home Depot Environmental Analysis

An organizations external environment consists of three interrelated sets of factors that play a principal role in determining the opportunities, threats, and constraints that the company will face. The first factor is the remote environment that comprises of factors originating beyond any organizations operating situation such as economic and technological factors. The second factor is industry environment. This more directly influences organizations prospects originating in the environment of its industry like competitor rivalry and the bargaining power of buyers and suppliers. Finally, the operating environment comprises factors that influence an organizations immediate competitive situation that could include the factors competitive position, suppliers, customer profiles, creditors, and the labor market. These three sets of factors provide many of the challenges that a particular firm faces in its attempts to attract or acquire needed resources and to profitably market its goods and services (Pearce, 2004).

Remote Environment

A major factor in the remote environment for Home Depot is in the area in technology. To avoid obsolescence and promote innovation, a firm must be aware of technological changes that might have industry influence (Pearce, 2004). Creative technological adaptations can suggest possibilities for new products, for improvements in existing products, or in manufacturing and marketing techniques (Pearce, 2004)

A long-term objective that Home Depot must address is in this area is product innovation. The company needs to introduce distinctive and innovative new products in 2006 and beyond to support emerging consumer trends. This type of strategy is needed to help differentiate Home Depot from others competitors in the marketplace (Webbolt, 2006).

Home Depot faces competition in product innovation from Lowe's and other companies (and sometimes individuals). This can have a profound effect on the organization in the years to come. Finding the right balance of research and development along with a low cost/price strategy will require careful planning and constant attention.

Industry Environment

The nature and degree of competition in an industry depend on factors such as the threat of new entrants and the jockeying among current contestants. To establish a strategic agenda for dealing with these contending currents and to grow despite them, a company must understand how they work in its industry and how they affect the company in its particular situation (Pearce, 2004).

The threat of substitute products or services is one of the major concerns for Home Depot. With competitors such as Lowe's gaining ground on Home Depot, the organization needs to keep its products differentiated at a competitive price and improve customer satisfaction. Home Depot needs to set a long-term goal of improving its IT infrastructure so it will help accelerate growth and earnings and beat back its prime competitor Lowe's (Levinton, 2004). The improvement in technology will help cut cost and improve efficiency for the organization in the long run. This will also "spill over" in the area of customer satisfaction by releasing more store representatives to help customers on the floor instead of in the purchase line.

An impact of substitute products and services are not just coming from the home repair industry. Wal-Mart, for example, can give comparable products while people shop for other items of interest. With the raising prices of oil and the affect it has on gas prices, consumers are looking for way to cut back on traveling. Home Depot has to offer something "more" or "better" than others retailers to draw consumers to its store.

Operating Environment

The operating environment