SAP arrives at Home Depot

Home Depot's CIO discusses the company's collaboration with SAP and testing of its ESA and BPP technologies

Bob DeRodes, executive vice president and chief information officer of The Home Depot, admits that the home improvement company, North America's second largest retailer and a Fortune 13 company, hasn't been on the cutting edge of information technology.

"Four years ago when I joined this company and walked the sales floors, I found one networked PC in the stores," DeRodes said in round-table panel at SAP's recent Sapphire user event in Boston. "And when our chairman asked if he could send e-mail to our associates and was told no, he asked why not and was told the necessary infrastructure didn't exist."

This is a company that is expanding at the rate of one new store nearly every 24 hours (it has more than 2,000 stores today) and is driven by the motto "stock it high and watch it fly." Technology information wasn't a priority in most of the company's nearly 26-year history.

That's changing, largely because of the group's unwieldy size.

Three years and $1 billion later, Home Depot is "stringing cable from here to shining sea" and investing in new technology not only in its front-end retail operations but also in back-office activities such as inventory and supply-chain management "where we still don't have a great deal of visibility," said DeRodes in a post-Sapphire telephone interview.

In Boston, Home Depot agreed not only to license all SAP products that the Atlanta company needs to become a global retailer, but also to collaborate with the business software vendor in the development of new applications for the retail sector.

"As the retail industry changes, we want to stay on the leading edge, as does SAP," said DeRodes. "They now have a global customer who can give them the requirements. Together, we can both stay out front."

Time will tell if that will be the case, but the fast-talking CIO appears confident about the progress he and his technology partners, including SAP, are making in a program he calls "digitizing the Depot."

Is DeRodes concerned about being used as a possible guinea pig for some of SAP's new technology, such as its Enterprise Service Architecture (ESA) and Business Process Platform (BPP)? If so, he's not letting on.

"We think ESA is the right direction," he said. "Architectures have been moving slowly in this direction for the past five years. And when a company with the breadth and depth of SAP adopts this, it becomes more of a standard in the industry. ESA will help us with speed to market and will provide greater flexibility, which didn't exist in the more monolithic architectures."

SAP views ESA as a way for customers to easily craft end-to-end workflows over multiple applications. Central to this technology is the NetWeaver integration platform and later BPP, a progression of NetWeaver, that will allow customers to integrate their mySAP Business Suite software with third-party or homegrown applications.

Whether Home Depot will install BPP right from the start or run NetWeaver is a "timing question," according to DeRodes. If the product is ready, the company is keen to be an early adopter to avoid upgrades down the road. "We've talked about this," he said. "It's a desired step for both of us."

As for pricing -- a core merchandising process -- DeRodes expects SAP technology, especially its new business analytics product, to help the retailer change and adjust prices more effectively to meet the needs of individual stores.

But the CIO is less excited about using a "value-based" pricing model for purchasing SAP software, an option the Walldorf, Germany, vendor is currently studying. "This is a big idea for them," he said. "Whether it's a big idea for customers is another issue. Frankly, the whole idea scares the hell out of me."

Home Depot has established its own pricing arrangement with SAP because, as DeRodes was quick to point out: "We wanted to feel good about the value we're getting today and in the long term."

Other technology companies, such as Accenture and IBM, are already offering valued-based pricing, and are willing to lower their base fees significantly and "bet that their products will deliver value," he said. "It can be a win-win situation; it's not always negative. But you have to be really smart. This is no place for naïve buyers."

Speaking about pricing and ways to lower software costs, DeRodes doesn't see many opportunities for open source in business application areas such as ERP (enterprise resource planning). "Linux has proven that it can work well in university settings and in the entrepreneurial world," he said. "But for Fortune 100 and even 200 companies, I think it has less promise. We wouldn't place a bet for our shareholders on bulletin-board software. Big companies need big software companies."

Looking ahead, DeRodes sees the big challenges for Home Depot in "tooling and training" its workforce in SAP technology. Although the company has been using SAP financial software for nearly seven years, it's now planning a much broader use that will require a greater effort from staff. "There will be a challenge in learning how to do multiple concurrent major SAP implementations," he said. "Other big companies have faced a similar challenge and done well. We can learn from them."

DeRodes expects SAP technology to drive Home Depot's business transformation. "That's what we're after," he said. "We have our work cut out for us."

Copyright © 2005 IDG Communications, Inc.