Home Depot Virtual Shopping Extension Program Running head: HOME DEPOT VIRTUAL SHOPPING EXTENSION PROGRAM

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Home Depot Virtual Shopping Extension Program William J. Museler University of Phoenix - Online Management of R&D and Innovation Processes TMGT 591 John Neels February 5, 2007

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Executive Summary Memo Home Depot Virtual Shopping Extension Program (VSEP) Table 1.0 The Home Depot Virtual Shopping Extension Program Genesis Environmental Analysis Objective: SWOT Analysis Internal Environment External Environment Home Depot Customer Demographics Home Depot’s Corporate Culture Opportunities Technology Road Map Phase 1: Preliminary Phase Phase 2: Development Phase Phase 3: Follow up Activity Critique and validate the roadmap: Develop an implementation plan: Review and update: Project Segmentation Methodologies Financial Project Plan Assessment Phase Two Project Personnel Requirements Table 3.0 Financial Projections and Considerations Table 4.0 Table 5.0 Table 6.0 Project Analysis and Review Home Depot Virtual Shopping Extension Program Global Deployment Introduction Marketing Challenges Marketing Deployment – Targeting with the Right Media Table 7.0 Global Resource Management Conclusion References

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The Home Depot

Memo
To: Professor John Neels From: William J. Museler CC: Date: February 5, 2007 Re: The

Home Depot Virtual Shopping Extension Program Executive Summary

Home Depot Virtual Shopping Extension Program (VSEP) The new initiative launched by Home Depot in the form of the Virtual Shopping Extension Program (VSEP) will allow access into markets which had previously seen little to no growth by the company. This program will connect the inventory system of each store to an online kiosk style consumer website. Both residential and commercial customers can shop, order, and pay for items and be assured that the items will be at the store upon arrival. This system benefits the company in three distinct ways. First, the program is an innovative ordering process in this market. Customers will be able to plan work out in advance then find out if materials required are available, the new system will suggest other store locations for items which are out of stock. The second benefit of this system is that the company will have a better defined picture of inventory in and out flow. Establishing delivery routes and partnerships with distributors will be easier since

Home Depot Virtual Shopping Extension Program the system will in effect be a real time database. The third benefit will be an expansion into the construction industry. Specifically in the small business construction fields where delays in material support can cut into slim profit margins. This system gives web-mobile capable contractors the ability to have inventory and ordering information where ever they and when ever they need it.

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A decision has been made to turn it into a profit center by spinning off the system and attendant supporting services into a separate business entity that will sell product and services to the global business community. In order to focus the efforts of this project into a cohesive strategy two markets will be examined Europe and China. In the European market “[C]onstruction output in 19 key European countries is expected to grow by +2.6%, to reach € 1297 billion (US$ 1651 billion) in 2006” (International Construction [IC], 2006, para. 1). This is a market largely untouched by Home Depot and could be a profitable entry market. In China “. . . spending on residential building construction [is] growing at 7.1% annually and nonresidential construction activity [is] increasing by 7.4%. . .” (Jana, 2006, para. 2). As seen by the cited statistics, Europe is a growth market. Internally, “Spain and France are predicted to show the strongest growth this year at +4.4 and +3.7%, respectively” (IC, 2006, para. 4). Long term the average growth rate for residential construction is expected to level out at between 1.7% and 1.8% (IC, 2006, para. 6), while this is not an attractive incentive to move into this market remains a consideration. Barriers to entry into the European Union vary depending on the market. In contrast China has a much more robust forecast in the industry. China is also considered in most forecasts as an emerging market. Home Depot began an effort to

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expand into this market in 2004 by entering “. . . into an arrangement to lease commercial office space in Shanghai to support a retail initiative in China” (Home Depot Inc. [HDI], 2006, p. 4). This initiative has established financial and business relationships in Shanghai and Shenzhen which should prove useful if this operation were to proceed. In general the following table lists a basic listing of barriers to entry into global markets. Table 1.0

(Reynolds, 1999, p.7) This listing is by no means inclusive but does point out key items to be addressed. To begin with the environmental aspects, China has strong obstacles with regards to cultures and languages, tariffs, quotas, development laws and cost of logistics and communications. China’s history of being used by foreign nations in its past has brought forth a mistrust of foreign controlled investment and represents an inherent barrier. The Chinese communist government is slowly recognizing the benefits of capitalism through its control of Hong Kong and will probably continue with its gradual easing of investment restrictions. The Chinese culture and language also represent a barrier to companies from the US because of their tendency towards remaining within their own

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culture and not adopting foreign norms and practices. Logistics will also play a role since China is physically half a world away from the US headquarters of Home Depot. Europe has these same barriers but in a more muted form. The US and Europe have been trading for several centuries and their cultures are intermingled to some extent, trade disputes do arise but are generally reconciled amicably. The main difference between the two markets is in the reaction of local competition. Europe has an established and somewhat mature residential and commercial building industry which Home Depot would have to overcome. China is an emerging market and thus significantly more open to entry. The recommended course of action would be to establish a separate business entity and focus its beginning operations in China. China represents a new market that has the potential to eclipse the US market in years to come. The projected growth of the nation as it integrates into the global business community is almost an exponential growth for the foreseeable future. Europe is a mature market, even though Home Depot has no presence there and would offer a significantly different product it must still overcome the obstacles of entering into a mature market with established market shares and brand recognitions. The cultural, linguistic and other obstacles that China has are all barriers which must be overcome. The Home Depot Virtual Shopping Extension Program (VSEP) requires a substantial commitment to change in infrastructure and the corporate culture. Moving the company from a strictly warehouse system to a customer integrated supply partner. The VSEP changes the operational aspect of the organization by providing services which the company has, at its core, shied away from; namely the packaging and loading of

Home Depot Virtual Shopping Extension Program merchandise in stores. The warehouse style model has worked successfully but is not compatible with expanding into emerging markets or the construction/commercial market. The US construction industry “. . . accounts for just under 5% of GDP . . .” (The

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Economist Intelligence Unit Ltd., 2006, p. 49), in 2003 this represented “. . . a seasonally adjusted annual rate of U.S. $ 933.2 billion . . .” (International Construction, 2004, Abstract). In smaller terms, the construction industry in this country is comprised of thousands of small corporations among the giant construction firms such as Toll Brothers. In a letter published by the Associated General Contractors of America it states that: “Construction is a low-margin industry. Internal Revenue Service data for 2002 shows that the 649,000 corporations in construction had net income (less deficit) of $28.4 billion, or 2.6% of total receipts of $1.1 trillion.” (Simonson, 2006, para. 7) This project seeks to take a segment of this market. As noted small business contractors function under small margins and as such rely on work volume in order to maintain profitable status. This combination leaves almost no room for delays which fall outside weather related obstacles. The ability to have a supply chain partner with the volume purchasing power of Home Depot coupled with no downtime in sorting materials in the store should be viewed as value added to small business contractors. This new program will also add to the customer service aspect of the business by providing value added service for the customer. The VSEP will be an optional method

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for both Do-it-yourself (DIY) and commercial customers to plan and pay for supplies for future projects. Establishing this system in a market and having it tied to the brand image of Home Depot is an excellent way to begin this project. It benefits the company by spreading brand recognition and serves as a beta testing platform for the system. In attempting to adopt this program into a generic use program certain changes will be necessary. The system as it was conceived relied on exiting infrastructure within the company to make the program function. Specifically the existing integrated inventory system and warehousing retail locations. In order for this system to function as a generic platform it must be able to provide the same level of service for every customer. To accomplish this, the customer must meet minimum requirements with regards to the mentioned infrastructure. Technical assessments must be made with regards to specific databases and versions but there must be in place computerized inventory tracking systems which can be connect to a network. The customers must also have the necessary warehouse or retail space available to package and store orders, this will be dependent on the industry and products the customer retails. As an example, Home Depot deals in large size home improvement material which can weigh several tons and take up several hundred cubic feet of space; whereas a company similar to Macy’s deals primarily in clothing so the area involved and the total of the items per customer would tend to be smaller. Marketing this product for use by companies outside of Home Depot could be in the form of loose partnerships. Kitchen design firms could partner with Home Depot and customize the program for their needs. Having the ability to design a kitchen and tell a

Home Depot Virtual Shopping Extension Program customer exact dates material availability would make an attractive marketing item. Other firms may simply use the program to augment their existing on-line shopping system. Marketing this program for use in outside cultures represents a different matrix of challenges.

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For the chosen market, China, this is not a difficult hurdle to overcome. In China there are “. . . more than 40 million personal computers [that] have access to broadband. . .” (World News Connection [WNC], 2006, para. 3) while “. . . e-commerce transaction volume has grown by 50-60 percent over the past couple of years and is expected to maintain fast growth for several years to come. . .” (WNC, para. 2). This would indicate that the cultural differences relating to internet commerce are marginalizing as time progresses. This should not always be taken for granted however. Potential customers must be made aware of these risks before considering purchasing such a system. It is in Home Depot’s interest to ensure that the product is tailored to the customer to ensure proper implementation for the simple reasoning that it could reflect badly on the Home Depot brand. In considering this system for deployment outside of the US markets it would be a prudent step to consider utilizing local human resources within the country being selected. These resources could include recruitment firms, marketing agencies and possibly hiring a consultant with expertise in cultural integration, such as a professor from a local university. Utilizing localized resources is a win-win proposition for the company seeking to expand into a market. The expertise and contacts of the local firms are a valuable resource and would take years to acquire otherwise. Using these resources

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also creates a more inclusive nature regarding the venture into the foreign market, rather than pushing into the market blindly and without support from local business. Technology transfer problems can arise in this type of program when there are such differences in language, culture and machinery. Technology platforms must be standardized between the two entities in order for a smooth operation to occur. The basics of standardized software and hardware are a must in making the operation function. A stark example of a catastrophic technology transfer error occurred to the NASA planned Mars lander operation. The operation failed “. . . because one engineering team used metric units while another used English units for a key spacecraft operation. . .” (CNN.com, 1999, para. 1). This simple oversight led to the loss of a $125 million dollar space probe. Technology transfer is a critical step in global operation since technology is involved in most every transaction in business today. Opportunities do exist in these types of operations. Technology from a company which desires to use the product may augment or prove better than that being used currently. In such cases a careful review must be undertaken to determine the impact of integrating forward with any new technology that may influence other systems within the organization even though they do not have a direct link to the proposed system. As an example if a company such as Apple chose to utilize the proposed system and it was determined that the Apple operating system provided substantial advantages over the one currently being used, this change would have to be researched as to how it would affect the rest of the operation. The hardware for the entire company would have to be changed since the inventory system is company wide. Changing out the computers to meet the

Home Depot Virtual Shopping Extension Program requirements of one program would have repercussions regarding the software and the associated licenses being used on the existing computer platforms. With the appropriate due diligence, development and implementation this program can be marketed for use by competitors and other industries. The simple premise belies the technical challenges involved but with a well thought out plan and proper technical integration the challenges can be overcome and the system installed.

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The Home Depot Virtual Shopping Extension Program Genesis The Home Depot® “. . . is the world's largest home improvement specialty retailer, with 2,087 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, 10 Canadian provinces and Mexico” (Dayhoff, 2006, para. 2). While this position is a stable one the company does exist in a highly competitive market. Its only close competitor in terms of market capitalization is Lowes Companies, which has only 40% of the market capitalization compared to Home Depot (Yahoo Finance, 2006, Top 10 Home Improvement Retailers 2004 Sales). This is in addition to other privately held home improvement stores and foreign competitors such as Canadian Tire based out of Toronto, Canada. Home Depot lists its mission statement as being able “. . . to provide the highest level of service, the broadest selection of products and the most competitive prices. . .” (The Home Depot, Inc., 2006, question 4). Setting a goal such as this in a market as large as the home improvement market is an arduous task. When the company was founded the idea of warehouse shopping was in its infancy. Home Depot was an innovator in creating a new industry of do-it-yourself (DIY) homeowners. Over time as the company grew they were able to leverage their market share to create brand name products especially for Home Depot at discounted rates, these companies include John Deere and Webber Grills. As in most competitive markets, staying ahead of competition is about being efficient, flexible and innovative. In this way I am proposing an entirely new way of interaction with the customer through the use of the internet, wireless communication,

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computers and phones. This new system will directly connect the customer with the store in a way that has not been attempted before. The premise of this new system is to connect the inventory system of each store to an online kiosk style consumer website. Both residential and commercial customers can shop, order, and pay for items and be assured that the items will be at the store upon arrival. This system benefits the company in two distinct ways. First, it is an innovative ordering process in this market. Customers will be able to plan work out in advance then find out if materials required are available, the new system will suggest other store locations for items which are out of stock. The second benefit of this system is that the company will have a better defined picture of inventory in and out flow. Establishing delivery routes and partnerships with distributors will be easier since the system will in effect be a real time database. This new system will seize on the opportunity created by the ever increasing wireless internet and communication market. The top five wireless communications companies in the world stand at a $526 billion dollar market capitalization (Yahoo Finance (2), 2006, TELECOM SERVICE PROVIDERS RANKED BY SALES). This type of mobile communication is a trend which will keep increasing. By establishing a link between the store and the customer in a manner such that the customer can interface with the company at their choosing is innovative and will be a value added service. This system will face some challenges in order for it to be fully implemented. These challenges will be: a) Culture change b) Store infrastructure change

Home Depot Virtual Shopping Extension Program c) Legacy inventory and network system integrations d) Customer recognition of the new system As in most changes to a routine, the first challenge will be in establishing a culture change within the Home Depot employees to demonstrate that this system will

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benefit them by growing the company. The new system will require specific changes to each store to accommodate this new policy of pre-buying inventory. The challenge here is to set up traffic flow such that losses in customer satisfaction from the walk-in shoppers who will are not utilizing the new system are mitigated. Legacy computer system integration versus new programs is always a tough decision to make. The challenge here is to determine the cost of integration when all things such as personnel training are factored in; then compare that to the cost of an entirely new system which will link inventory, sales, and ordering. Finally there is the task of ensuring that the customer knows of this new service and its capabilities. Successful marketing is not an easy endeavor and the task of informing a customer base of a new way of doing business is the challenge. I expect that this program will require substantial research into several disciplines of finance, marketing, and system integration to name a few. The intent of the new system is to be the first company in this market to link the customer with the product in a manner that has not been attempted before.

Environmental Analysis Objective:

Home Depot Virtual Shopping Extension Program “Continue to lead, change and grow in ways that will benefit our shareholders, customers, associates, communities and suppliers for years to come.” (Home Depot Inc. (1) [HDI], 2006, p. 2)

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SWOT Analysis Table 2.0 (Datamonitor Plc, 2004, p. 1) Location of Factor Type of Factor Favorable Unfavorable Strengths Weaknesses (a) Exclusive brand and product (a) New store productivity remains supplier agreements weak (b) Large, diverse and growing retailer (b) Rising expenses (c) Business model (c) Store layout and appearance (d) Distinctive product range (e) New Capitol Expenditures (Capex) priorities Opportunities Threats (a) Growth in global sourcing (a) Competitive factors (b) Payback from IT investment (b) Overlap between Home Depot (c) North American growth potential and Lowes remains (c) Industry slowdown (d) International expansion

Internal

External

Internal Environment Home Depot has shown steady strong growth over the past several years. Making proactive changes in technology and making improvements in product, customer relations and market share has kept the company the leader in the home improvement industry. The company has also diversified through acquisitions of companies in supporting markets of the home improvement industry. Home Depot uses its economy of scale to its advantage in ways in which other companies are not able to accomplish. A strategy employed by the company in expanding its market share is to “. . . open new

Home Depot Virtual Shopping Extension Program stores near the edge of market areas served by existing stores” (HDI, 2006, p. 4). This approach is termed a cannibalization approach as it takes away existing store sales

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revenue but the return “. . . increases customer satisfaction and [our] overall market share by reducing delays in shopping. . .” (HDI, p. 4). Home Depot has been keeping pace with internal information technology advances as well. Beginning in 1996 when the company transitioned from the proprietary VSAT network system, which relied on an outdated wireless platform, to a land based network system. The company recognized “. . . that significant changes have occurred in the costs and reliability of networks and network options” (Chain Store Age, 1996, p. 1). Moving forward into today’s market the company has started to implement self checkout kiosks and increased centralized automated restocking to 20% of store revenue. The company’s focus on growth is represented in that fact that in 2005 they had “. . . $3.9 billion of Capital Expenditures, allocated as follows: 66% for new stores, 10% for store modernization, 9% for technology and 15% for other initiatives. In fiscal 2005, we opened 179 new stores, including five relocations” (Home Depot Inc. (1) [HDI], 2006, p. 28).

External Environment While Home Depot is the market leader in the home improvement industry it does face rising competitive forces from Lowes. Lowes stands at almost half the market capitalization of Home Depot but has been steadily increasing its market share (Yahoo Finance [YF], 2006, para. 1). Lowes has an advantage in overlap between stores and

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Home Depot stores where “55% of Lowes locations are within 5-miles of a Home Depot store, while 42% of Home Depot’s stores are within 5-miles of Lowes figure which are more acute in the top-25 markets” (Datamonitor Plc, 2004, p. 9). This represents a threat to market share and store revenues. As competition continues to grow in the US, Home Depot is looking outside of the US borders to expand the company. “At the end of the 2005 fiscal year there were 54 stores operating in Mexico, 10 of which opened in 2005” (HDI, 2006, p. 4). Home Depot also operates 137 stores in Canada and reached commercial leasing agreements in Shanghai to support retail initiatives as a prelude to entering into the Chinese home improvement market (HDI, p. 4). The potential for growth outside of the US is represented by this segmentation graph of the worldwide home improvement market share: Figure 1.0 (Datamonitor Plc (2), 2006, p. 10)

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Home Depot Customer Demographics The demographic for the Home Depot customers are primarily home owners but also include commercial building and services. Home Depot has led the industry as being the most “. . . aggressive at testing new formats, from the upscale Expo Design Center to Home Depot Landscape Supply, a garden center format that targets landscapers and avid gardeners” (Howell, 2004, p. 28). This openness to innovation is what has kept the company ahead of its competition. The company is recognizing the opportunities of expanding further into the online retail market through its Home Depot Direct website and by making budget allowances for new initiatives.

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Home Depot’s Corporate Culture The corporate culture of Home Depot is one which is receptive to innovation. As described earlier in this report, the company is recognized as being the most aggressive at trying innovative ideas in their store layouts and departments. In reviewing their 2005 budget they allotted $3.9 billion or 4.7% of total revenues for capitol expenditures, 25% of this were allocated to store renovation and new initiatives. Opportunities The two opportunities discussed in the initial proposal were the “. . . the ever increasing wireless internet and communication market” (Museler, 2006, p. 3) and increased presence in the commercial service and material supply market. The new system will give consumers more choice in how they plan, organize, and order material for home improvement projects and commercial building and renovations. Having a distinctive process and greater flexibility for the customer will keep Home Depot as a market leader and could create a customer loyalty in the commercial building and service industry. The company’s mission statement is listed as: “The Home Depot is in the home improvement business and our goal is to provide the highest level of service, the broadest selection of products and the most competitive prices. We are a values-driven company and our eight core values include the following: • • Excellent customer service Taking care of our people

Home Depot Virtual Shopping Extension Program • • • • • Giving back Doing the "right" thing Creating shareholder value Respect for all people Entrepreneurial spirit (Home Depot Inc. [HDI], 2006, para. 4)

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The purpose of this new system is to provide a real time link between the customer and the Home Depot store inventory. By creating this link the customer can have an accurate depiction of the materials available to them so that budgeting and planning are more efficient. In addition the company can realize an added benefit by reducing the amount of shrink in its inventory valuations. Shrink is “. . . the difference between the recorded amount of inventory and the physical inventory” (HDI, 2006, p. 31). This difference while not a large number does affect the valuation of inventory and thus can have implication on the bottom line; this new system can be used as a tool to correct inventory problems before they have a chance of becoming larger problems. The methodology used to determine this system resulted from brainstorming ideas. To begin the list of companies was reviewed for familiarity and perceived ease of applying the proposed assignment. After selecting a company which had familiarity and that could meet the assigned criteria a brainstorming session followed to develop ideas which could be implemented. After reviewing some technical data the proposed concept was chosen. After reviewing the concept another brainstorming session was held to determine feasibility, implementation, and marketability. The concept was then fine tuned into the proposal submitted in week one.

Home Depot Virtual Shopping Extension Program Technology Road Map Phase 1: Preliminary Phase The factors that are commonly addressed in the preliminary phase of roadmap

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development are to determine satisfaction of essential conditions, committed leadership and sponsorship from the company, and defining the scope and boundaries for the technology roadmap. As discussed earlier in this report, corporate leadership is supportive of innovation and implementing new technologies. Developing a scope of work for this system is a difficult task but one which can be managed, the initial part of the system implementation will be in establishing the interface between the customer and the live inventory list. This is the essential part of the system and must be seamless in its integration and user friendly to the customers. The initial boundaries will be that the service will not be able to receive orders for the beginning stages of implementation. This will allow time for the system to work through any unforeseen problem, allow for customer feedback and recognition and for preparation of the follow-on stages of implementation. Phase 2: Development Phase In setting about developing this new system the established boundaries and corporate goals must be compared to the results on a frequent basis in order to maintain focus and acceptability. In this phase the virtual link between live inventory and a viewable customer interface must be established. Since this interface will be into a live section of the company’s data network information technology (IT) security is paramount. A review of the existing in house capabilities must be undertaken in order to determine whether it is feasible to operate the new system with on hand technology and

Home Depot Virtual Shopping Extension Program personnel or if an outsourced solution is necessary. The next step will be to work with

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wireless technology experts to determine how best to format the information to work with this technology. Lastly a test market must be selected to implement the first installation. Phase 3: Follow up Activity The follow up activities are required because at the preliminary stages only a few people are involved and therefore more people are required to validate the roadmap after reviewing and making critical remarks. This phase primarily consist of 3 sub phases. Critique and validate the roadmap: During this phase the technology roadmap will be critiqued by a sampling of different segments of the company, this group will be large as compared to the preliminary phase. The recommendations with solid reasoning will be made for any changes that are required in plan. The revision to the technology roadmap will take place only when the stakeholders are in agreement with the implementation team. Develop an implementation plan: During this phase all the information is on the table. After an initial market has been selected for installation a plan must be drawn to inform and train local personnel and to begin a marketing and advertising campaign to make customers aware of the new service. Review and update: The review and updates is an important part of the technology roadmap. Support for the technology must be made available to customers and store personnel. During the implementation phase it will be determined whether or not there was sufficient help or if the resources allocated were too generous.

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Project Segmentation The initial phase of this project will be to provide a real time link between the customer and the Home Depot store inventory. As stated earlier the initial boundaries will be that the service will not be able to receive orders for the beginning stages of implementation. The follow on stages will be in two parts; the first will be to allow purchases through the system and have the ordered material marked and held in the store to await pick up, the second part will be to segment the store into a true warehouse section, with no customer foot traffic, so that order packages can be put together for pick up by the customer. The first part will require additional personnel training and equipment to identify ordered material. This step should not be that large of a move from the initial system implantation. The second stage will require significant buy in from corporate levels because of the infrastructure changes and possible implications such a change could have on the brand image. Again there will be personnel training issues and possibly material handling equipment upgrades. The initial concept of this project is categorized as breakthrough. While similar systems are already functional in other industries they do not compare to the scale and type being implemented in this market. This innovative way of linking customer and business is one which, if successful, will be duplicated competitors in the industry. The second part of the plan is a derivative of the initial part. It is the next logical step in the process of allowing the transaction to occur. The last part of the plan will be the compilation or platform. This last segment will tie the system into a cohesive functioning

Home Depot Virtual Shopping Extension Program part of the company and will be a platform business. Once in its established form this segment can then seek to fine tune its product offering and possibly branch into other segments of the company such as services and instruction.

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Methodologies Brainstorming will be utilized for its familiarity and ability to produce quick results. According to a book on teaching techniques, brainstorming is a strong tool to use and it is in “. . . the problem-solving area that brainstorming probably succeeds better than any technique. . .” (Dunn & Kenneth, 1972, Chap. 3 para. 4). This technique can also aid in critical thinking by generating differing points of view so that alternates solutions can come to fruition. Another advantage of this methodology is that “. . . individuals often react in traditional patterns and rarely have an innovative "brainstorm" without the stimulus of multiple sounding boards” (Dunn & Kenneth, Chap. 3 para. 4). The 5Ws and H technique because it also is a proven tool for idea generation and can “. . . produce a wealth of information and valuable ideas” (Leith, 2004, mid-page). This method simply uses questions to stimulate critical thinking, those questions are What? Where? When? Who? Why? and How? The Force field analysis technique will be utilized for its capability as a “. . . specialized method of weighing pros and cons” (Mindtools, 2006, para. 1). As seen in the following table, it represents a way to graphically represent a problem in a format which is easier to visualize the problem at hand. Figure 2.0 (Mindtools, 2006, para. 4)

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Financial Project Plan Assessment The premise of this new system is to connect the inventory system of each store to an online kiosk style consumer website. Both residential and commercial customers can shop, order, and pay for items and be assured that the items will be at the store upon arrival. This system benefits the company in three distinct ways. First, it is an innovative ordering process in this market. Customers will be able to plan work out in advance then find out if materials required are available, the new system will suggest other store locations for items which are out of stock. In the final implementation of the system orders will be processes and packaged for pick up before the customer arrives. This will

Home Depot Virtual Shopping Extension Program serve as a strong attraction for contractors who are dependent on time frames for completing projects. The third benefit of this system is that the company will have a better defined picture of inventory in and out flow. Establishing delivery routes and

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partnerships with distributors will be easier since the system will in effect be a real time inventory database. In the first stage of implementation the program will require training for in-store personnel. This training will consist of educating the personnel in the: • • • • project concept stages of implementation levels of responsibilities technical support for in-store personnel

This training will place a burden on the human resources (HR) department, since this program is expected to be a long term investment any new personnel hired associated with this project should be either duel purpose, i.e. any HR personnel hired for this training should also be able to be utilized for regular duty in the HR department, or they should be placed in a role where after training store personnel they transition into technical support roles for the system. The qualifications for the trainers in this system will primarily be in information technology, communications and database management. The best way to proceed with this project is to incorporate this project into the Human Resources Department. The program will be a sub-department and will begin as a small group and gradually add more personnel as the follow-on stages of the program are implemented. While this will start in the HR department there will also need to be a liaison to the IT department. The Home Depot has an established procedure for new

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projects which is “. . . managed by an established executive committee, which approve [s] and prioritize [s], various projects within the enterprise. . .” (Griffin, 2005, p. 2). In this case the project will fall under the Information Technology Advisory Committee (ITAC); the committee will review the proposal and has the authority to “. . . retain experts in the field of information technology and information security to assist the Council with its reviews (The Home Depot, Inc., 2006, p. 1). The anticipated salary burden posed by this project will increase gradually as it is implemented. For the purposes of this analysis the corporate headquarters location will be used for comparative salary research and Monstor.com’s Salary Center will be used for median salary amounts. Training Center Manager Salary + Bonus + Benefits estimate: $168,837 Initial number required: 1 Estimated Total Commitment: $168,837 Directs the design, planning, and implementation of corporate training programs, policies, and procedures. Approves new training techniques and suggests enhancements to existing training programs. Oversees relationship with vendors to ensure appropriate employee participation in outside training programs. Requires a bachelor's degree in area of specialty and at least 10 years of experience in the field or in a related area. Familiar with a variety of the field's concepts, practices, and procedures. Relies on extensive experience and judgment to plan and accomplish goals. Performs a variety of tasks. Leads and directs the

Home Depot Virtual Shopping Extension Program work of others. A wide degree of creativity and latitude is expected. Typically reports to top management. Training Specialist III Salary + Bonus + Benefits estimate: $88,903 Initial number required: 3 Estimated Total Commitment: $266,709 Designs and conducts company training programs. Monitors and reports the effectiveness of training on employees during the orientation period and for career development. May be involved in initial plan design and existing plan enhancements. Requires a bachelor's degree in a related area and 4-8 years of experience in the field or in a related area. Familiar with a variety of the field's concepts, practices, and procedures. Relies on experience and judgment to plan and accomplish goals. Performs a variety of complicated tasks. May lead and direct the work of others. May report directly to an executive or head of a unit/department. A wide degree of creativity and latitude is expected

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Training Specialist I Salary + Bonus + Benefits estimate: $59,804 Initial number required: 6 Estimated Total Commitment: $358,824 Conducts company training programs. Monitors and reports the effectiveness of training on employees during the orientation period and for career development. Requires a bachelor's degree in a related area and 0-3 years of

Home Depot Virtual Shopping Extension Program experience in the field or in a related area. Has knowledge of commonly-used

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concepts, practices, and procedures within a particular field. Relies on instructions and pre-established guidelines to perform the functions of the job. Works under immediate supervision. Primary job functions do not typically require exercising independent judgment. Typically reports to a manager.

Database Analyst IV Salary + Bonus + Benefits estimate: $123,511 Initial number required: 3 Estimated Total Salary Commitment: $370,533 Reviews, evaluates, designs, implements and maintains company database[s]. Identifies data sources, constructs data decomposition diagrams, provides data flow diagrams and documents the process. Writes codes for database access, modifications, and constructions including stored procedures. Requires a bachelor's degree in area of specialty and 6-8 years of experience in the field or in a related area. Familiar with a variety of the field's concepts, practices, and procedures. Relies on extensive experience and judgment to plan and accomplish goals. Performs a variety of tasks. Leads and directs the work of others. A wide degree of creativity and latitude is expected. Typically reports to a manager or head of a unit/department.

Phase Two Project Personnel Requirements

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The following personnel will be hired in the Phase Two part of this program. The two positions required are Material Handler and Material Handler Supervisor. It is estimated that there will be 10 Materials Handlers and two Materials Handler Supervisors per store. Materials Handler Supervisor Salary + Bonus + Benefits estimate: $70,647 Supervises and coordinates the work of employees who load and unload material within a warehouse or storage facility. Oversees the utilization of hand trucks, forklifts, hoists, conveyors, or other handling equipment to move material to and from aircraft, trucks or trains and within the storage facility. Prepares work schedules, assigns work, and oversees the work product. Ensures procedures are according to specifications. Requires a high school diploma and at least 5 years of experience in the field or in a related area. Has knowledge of a variety of practices and procedures within a particular field. Relies on experience and judgment to plan and accomplish goals. Performs a variety of complicated tasks. Leads and directs the work of others. A wide degree of creativity and latitude is expected. Typically reports to a manager.

Materials Handler III Salary + Bonus + Benefits estimate: $42,842 Loads and unloads material within a warehouse or storage facility. Utilizes hand trucks, forklifts, hoists, conveyors, or other handling equipment to move material to and from aircraft, trucks or trains and within the storage facility.

Home Depot Virtual Shopping Extension Program Requires a high school diploma with 2-5 years of experience in the field or in a related area. Has knowledge of standard practices and procedures within a particular field. Relies on limited experience and judgment to plan and

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accomplish goals. Performs a variety of tasks. Works under general supervision; typically reports to a supervisor or manager. A certain degree of creativity and latitude is required.

The program will have a performance bonus system in place to maintain moral and keep key personnel retention rates high. The system will be metric based to include performance reviews from students/employees as well as supervisors. In addition the metric will include the technical support data when the system is brought on line. This last part will be a real world feedback check of the training program and training. The Home Depot has an existing policy of forward planning which “. . . established IT and functional accountability, [and] a formal and consistent five-year total-cost-ofownership analysis. . .” (Griffin, 2005, p. 2). In beginning to analyze this new program the following risks are expected: • Technical – problems integrating web access with existing inventory databases • People – training the existing workforce and new personnel in an efficient and timely manner • Cultural – acceptance of the new system within the Home Depot culture and with the customer base

Home Depot Virtual Shopping Extension Program Table 3.0 Risk Chance of Occurrence • Mitigation Strategy

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Technical

4 •

Have mirror databases running at the technical support center in order to model problems which arise. Enact a trouble call system with definitive completion dates. Focus new hiring on technologically competent personnel Offer wage incentives to existing employees to complete and become proficient in the new system Begin a knowledge sharing campaign explaining the phases of the program Encourage comments and acknowledge the participation in the process with small incentives

People

2

Cultural

3

A Gantt chart representing all projects, all tasks, and all resources assigned to each task is attached in a separate document. In order to best represent the size and scope of this project it was decided to not include overview or detailed reports in this report. The Project is scheduled to run for 235 days from commencement to completion. Financial Projections and Considerations

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The US construction industry “. . . accounts for just under 5% of GDP . . .” (The Economist Intelligence Unit Ltd., 2006, p. 49), in 2003 this represented “. . . a seasonally adjusted annual rate of U.S. $ 933.2 billion . . .” (International Construction, 2004, Abstract). In smaller terms, the construction industry in this country is comprised of thousands of small corporations among the giant construction firms such as Toll Brothers. In a letter published by the Associated General Contractors of America it states that: “Construction is a low-margin industry. Internal Revenue Service data for 2002 shows that the 649,000 corporations in construction had net income (less deficit) of $28.4 billion, or 2.6% of total receipts of $1.1 trillion.” (Simonson, 2006, para. 7) This project seeks to take a segment of this market. As noted small business contractors function under small margins and as such rely on work volume in order to maintain profitable status. This combination leaves almost no room for delays which fall outside weather related obstacles. The ability to have a supply chain partner with the volume purchasing power of Home Depot coupled with no downtime in sorting materials in the store should be viewed as value added to small business contractors. Using the revenue data from 2002 of $1.1 trillion dollars in contractor receipts this project will set a goal of five percent market share in contractor receipts or $55 billion dollars within five years. The following represents the five year projection of the salaries and store implementations, also noted in this table are the additions of new personnel (Material Handler III and Material Handler Supervisor) and an assumed annual inflation rate of 3.5%.

Home Depot Virtual Shopping Extension Program Table 4.0 Year Number 1 2 3 4 5 Yearly project Salaries $4,013,473 $21,245,365 $41,928,942 $66,185,015 $94,138,621 Total Stores:

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Number of Stores Implimented 5 30 35 40 45 155

The next table illustrates the projected revenues the project will generate. Assumptions made are based on GDP projections and the assumed five percent construction industry share of the GDP figure. Table 5.0 US GDP Projection in $ Billions $12,083 $12,506 $12,945 $13,399 $13,869 Five Percent Construction Industry Rate in $ billions $604.13 $625.32 $647.25 $669.95 $693.45 Projected Home Depot Share in $ billions $3.02 $4.69 $9.71 $16.75 $24.27

Year 2006 2007 2008 2009 2010

Targeted Share 0.50% 0.75% 1.50% 2.50% 3.50%

Assuming a discounted rate of 4.3% (The Home Depot Inc (1), 2006, p. 47) the Net Present Value of the project is $49.4 billion dollars as represented in the following table.

Table 6.0

Home Depot Virtual Shopping Extension Program Projected Home Depot Share $3,020,650,234 $4,689,893,836 $9,708,772,387 $16,748,826,407 $24,270,779,749

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Yearly project Salaries ($4,013,473) ($21,245,365) ($41,928,942) ($66,185,015) ($94,138,621) Net Present Value Project Analysis and Review

Cash Flow $3,016,636,761 $4,668,648,471 $9,666,843,445 $16,682,641,392 $24,176,641,129 $49,388,069,988

The scope and resources utilized by this project are significant. The capitol investment required is nominal when compared to the overall operations of the corporation but is still sizeable. Besides the inherent monetary risk associated with this kind of project there is also an intangible risk in the possible harm to the Home Depot brand image. Since its inception the Home Depot has strived to keep its brand image as one of partnering with the do-it-yourself (DIY) home owner in keeping with their trademark slogan “You can do it, we can help”™. This new venture moves slightly away from that image into the commercial construction industry and large project DIY home owner. The assumptions made in calculating the financial data for this project are worth reviewing throughout the project implementation based on the risks posed to the corporation. To begin it was assumed that inflation would be steady state throughout this projection period. This assumption is probably a safe one based on historical data. The next assumption was two fold based on research of the construction industry. Historical data suggests that the construction industry accounts for approximately five percent of the US Gross Domestic Product (GDP). Again, this assumption has historical backing and is probably a safe assumption. Since there was no concrete data regarding residential versus commercial construction the entire industry figure was used in the

Home Depot Virtual Shopping Extension Program calculation. This assumption could prove to be significantly higher than real world

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returns. The goal set for the project was based on this assumption which could result in cash flow projections that may or may not be accurate.

Home Depot Virtual Shopping Extension Program Global Deployment Introduction The new initiative launched by Home Depot in the form of the Virtual Shopping Extension Program (VSEP) will bring Home Depot into the global economy in a manner which has not been seen before. This program will connect the customer with the company through the inventory system of each store with an online kiosk style consumer website. This system is designed for use by either residential or commercial customers; where they can shop, order, and pay for items and be assured that the items will be packaged and waiting at the store upon arrival.

Marketing Challenges The road to deploying VSEP to a global market is faced with many challenges. The first and perhaps greatest challenge is of establishing brand recognition is target markets. Whether the market is competitive, closed or open there is still a challenge of associating Home Depot with what consumers need. As an example, IKEA entered the US market in a conservative approach which focused in major metropolitan areas. This initial strategy relied upon their products strength in being “. . . flexible, adaptable home furnishings, scalable both to larger homes and smaller dwellings” (IKEA, 2006, para. 4). This strategy paid off when it attracted city apartment as well as close suburban house

Home Depot Virtual Shopping Extension Program dwellers. Home Depot can mimic this approach by targeting areas which are experiencing strong housing growth or have the potential for strong growth. A second challenge facing this deployment lies in establishing the same do-it-

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yourself (DIY) market which exists in the US. This is the backbone of the franchise and must be preserved if the deployment is to be successful. Marketing to foreign cultures is “. . . often hindered by a lack of knowledge about the target groups. Further, a number of U.S. cultural perceptions cause many marketers to develop inaccurate perceptions of the populations they’re cultivating, although some of these beliefs may sometimes be true” (Lee, 2004, p.34). This pitfall can be overcome through due diligence in researching the target market and associated demographic. Another pitfall presented by foreign markets is the practice of negotiating for products and services. In the US the consumer is accustomed to paying the asking price, in many foreign countries this is not the norm. This practice “. . . is not simply a way of getting a better price. It’s also a way to get to know those with whom one is doing business” (Lee, p.35). Using this as a basis with which to begin the integration into the market is an important concept to understand. Strategies to conform or appear to conform to this practice can be as simple as “. . . giving a habitual negotiator a free sample. . .” (Lee, p.35). By forming a bond or understanding between the customer and the company two things are accomplished. First, the customer is put at ease with regards to their cultural preference to negotiate price and second the company establishes favorable brand recognition with the local consumer.

Marketing Deployment – Targeting with the Right Media

Home Depot Virtual Shopping Extension Program This deployment must begin with targeted marketing in order to establish an

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initial buzz or excitement about the coming store opening. The communication company Verizon uses “. . . in-depth market research, focus groups and surveys” (Verizon, 2006, para. 2) as tools for their multicultural marketing teams. This approach combines the analytical remote research with face to face meeting research to better define and triangulate the results of the data. Other tools available are print, radio, television and web advertising. Market research will of course be a vital part of this exercise but it will only be used to guide the process along and to shape the marketing efforts as they progress. In one of the target markets of China, determined previously, the culture is different to market to in terms of the media utilized. In the US there is a strong commuter culture which places customers in cars and public transportation for set periods of time. This is where radio and billboard advertisements can have tremendous affect. In China this is not the case, mass transit is beginning to expand rapidly and bicycles and pedestrian traffic are the norm (Simmons-Boardman Publishing Corporation [SBPC], 2002). Finding a medium which will efficiently communicate the essence of the brand to the consumer is the goal of this stage of the deployment; after market research has been accomplished and identifies a target the mediums available will be chosen. Billboard technology has entered the modern age with digital projections or images which can also be interactive with passersby. This type of media should be the focus of the advertising campaign in this market. It has the advantage of being able to demonstrate to the consumer the product and service of what the brand is and does in the time frame available. The digital billboard also has the advantage of being able to project television

Home Depot Virtual Shopping Extension Program type commercials to an audience which may not have large segment that owns televisions. Foreign cultures also have a commonality which is quite different from the US market, the pace of life in business and recreation is decidedly slower. In the US we

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compress our work and recreation into time allotments whereas in other countries work is not necessarily a means to an end. Life in these cultures largely focuses on the nuclear family and intersperses leisure with business in the form of mid-day rest or siesta. In order to market to these cultures this behavior must be taken into account. The marketing approach of interjecting the DIY culture into the foreign market should embrace this type of behavior and adjust the advertising to include family and products which relate to the lifestyles targeted in the market research. There are additional risks associated with this venture. In beginning the exercise of entering foreign markets the main market or home base should not be left to stagnate in its same business model. The characteristics which made Home Depot a success, finding a niche DIY market and exploiting it into a multibillion dollar corporation should not be forgotten. DIY innovations are ongoing and there should be a clear delineation between the home based or US market and the foreign market within the organizational structure. By keeping each business unit separate they can each focus on strengthening their individual markets and not have the added burdens of close corporate interaction. It would be suggested that the organizational structure be changed into a matrix type structure to better facilitate this venture. An example can be seen in the following table: Table 7.0

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The product divisions would be represented by hardware, home and garden, installation services and so on. This type of structure could tie together each specialty of the operation while giving the individual business unit freedom to operate in an autonomous manner.

Global Resource Management There are several choices which must be considered when planning a venture with the depth and size of this one. In the US market, Home Depot has an established supply chain, marketing, and infrastructure organization. In seeking to expand into global markets the initial choice is whether to utilize this established network to gain initial momentum or to start from square one in each individual target market. The advantage of starting from scratch for the overall organization is that the financial risk is considerable lower with little initial capital investment, the disadvantage is that the brand

Home Depot Virtual Shopping Extension Program

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image could be harmed should the venture fail due to lack of funding. The advantage of utilizing the existing networks is twofold. First, the initial capital is in place and the venture can concentrate on the task of establishing the franchise rather than adding the burden of raising capital as well. The second advantage is in the experience gained through already achieving the networks. It is suggested that the existing networks of supply chain, human resources and infrastructure services be utilized in a time limited basis. Setting a time based goal rather than a financial one is a more incentive based way of setting up this type of operation. If the goal of ending the services of the existing networks were financial the impetuous to excel could be open ended. By establishing a reasonable time frame to success the business unit is forced to operate in a manner which will provide the quickest return and should stimulate innovative solutions to problems which may occur.

Conclusion The Home Depot Virtual Shopping Extension Program Global Deployment will be a complex, time and resource consuming exercise. The rewards which its completion should return will place Home Depot as the world leader in the home and commercial building markets. This system, when implemented, will elevate the brand by making it distinctly different from its competitors while simultaneously providing a competitive advantage.

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Home Depot Virtual Shopping Extension Program Home Depot, Inc. (2006). FAQ - Frequently Asked Questions. Retrieved 25 September 2006, from http://ir.homedepot.com/faq.cfm?FAQPage=FAQ#4 Home Depot, Inc. (2006). Information Technology Advisory Council. Retrieved 27 October 2006, from http://ir.homedepot.com/governance/charters_advisory.cfm Howell, D. (2004, June 7). Home Depot Chisels Out Changes by Taking on New Demographics. DSN Retailing Today, Vol. 43 Iss. 11, pp. 26-28. Retrieved 7 October 2006, from EBSCO Host Database

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IKEA (2006, December 2). In Wikipedia, The Free Encyclopedia. Retrieved December 4, 2006, from http://en.wikipedia.org/w/index.php?title=IKEA&oldid=91590723 International Construction (2004, March). Mixed Record. Retrieved 30 October 2006, from EBSCO Host Database International Construction (2006, July). Rise seen for European construction growth. International Construction, Vol 45 Iss 6, 8. Retrieved 10 November 2006, from EBSCO Host Database Jana, R. (2006, September 21). China's New Architectural Wonders. Retrieved 10 November 2006, from EBSCO Host Database Lee, M. D. (2004, Spring). Cultural Conpetence for Marketers. Marketing Health Services, Vol. 24 Iss. 1, pp.34-38. Retrieved 4 December 2006, from EBSCO Host Database Leith, M. (2004, March 26). Compendium of Idea Generation. Retrieved 8 October 2006, from http://www.ideaflow.com/ideagen.htm#wwwwwh

Home Depot Virtual Shopping Extension Program Marquez, J. (2006, September 11). Chief Change Officer: Measuring Up. Retrieved 27 October 2006, from http://www.workforce.com/section/02/feature/24/51/95/index.html Monstor.com (2006, October). Salary Center. Retrieved 27 October 2006, from http://promotions.monster.com/salary/?WT_srch=1&WT_srch=1 Reynolds, J. (1999, June). Back Door Globalisation: Who Will Dominate European ECommerce? European Retail Digest, Iss. 22, pp. 5-9. Retrieved 13 November 2006, from EBSCO Host Database Simmons-Boardman Publishing Corporation (2002, March). Mass transit for China's

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masses - World Update - rail transit situation in China - Brief Article. Retrieved 4 December 2006, from http://www.findarticles.com/p/articles/mi_m1215/is_3_203/ai_84650887 Simonson, K. (2006, September 5). General Facts about the Construction Industry. Retrieved 30 October 2006, from http://www.agc.org/galleries/economics/QuickFacts101106.doc The Economist Intelligence Unit Ltd. (2006). Country Profile 2006 - United States. Retrieved 30 October 2006, from EBSCO Host Database Verizon (2006). Marketing to Diverse Communities . Retrieved 4 December 2006, from http://newscenter.verizon.com/kit/diversity/marketing.html World News Connection (2006, July 18). China's Online Transactions To Reach 1 Trillion Yuan in 2006. Retrieved 13 November 2006, from EBSCO Host Database Yahoo Finance (1) (2006, September 25). Direct Competitor Comparison. Retrieved 25 September 2006, from http://finance.yahoo.com/q/co?s=HD

Home Depot Virtual Shopping Extension Program Yahoo Finance (2) (2006, September 25). Telecom Service Providers Ranked by Sales. Retrieved 25 September 2006, from http://finance.yahoo.com/q/co?s=VZ

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