Office rules

Leading one of the world's largest office supply stores wasn't always part of Bruce Nelson's plans, but when the opportunity presented itself in July 2000, he was ready.

"I always wanted to lead something," says Bruce Nelson, chairman and CEO of Office Depot. "I had a dream as a kid; I wanted

Nelson may view his time with Office Depot as a gift, but he is willing to give as much as he receives. His vision for the company is comprised of seven strategies, but before any of those could be implemented, he had to convey them to his employees and convince them of their validity.

"The real challenge is - in our case some 50,000 employees have to have, some broad understanding of what we want to do an how we're going to get there," Nelson says. "We spent some time talking about the most important things we can do, and this year established seven strategic objectives. We talked about them specifically, in general, broadly, across the organization, in all kinds of different formats. But the purpose was to get alignment.

"I also think that people, to the extent that they work for a company, want to know

that their work counts for something. Does what they do really count? And what are they working on; how does it fit the larger picture?"

The first of Nelson's seven objectives is to reposition Office Depot's North American real estate portfolio.

"Our stores, on average, are older than our two major superstore competitors," says Nelson. "Older stores have more. difficulty in organically growing. The second point is that we lack a real strong retail presence in one-third of the United States. Basically, for the most, part, we're absent from the Northeast."

Tied to that, expansion plan is another of the seven strategies - Office Depot recently announced plans to correct the store presence deficiency with the opening of a new concept store.. The project, called Millennium2, is designed to reinvent the retail model by making the stores less expensive to open, more efficient to operate and easier for consumers to shop in.

"By building on the things we have learned from Office Depot's Millennium pilot project and combining them with extensive market research and a healthy dose of home-spun ingenuity, we are able to offer our customers the most enjoyable and satisfying shopping experience in the industry," Nelson says. "As we roll out these new stores, customers in the Northeast for the first time - will have a choice, an alternative to the only place they've been able to purchase office supplies."

The new concept may be easier and cheaper to open, but that, doesn't mean the company plans on letting other areas slide.

"Our second (objective) was to control costs while enhancing quality," he says. "While it sounds, I suppose, like everybody in this day and age, you really have to first. focus on quality - quality defined as meeting or exceeding customers' expectations. I've always taken the position that the best, way to do that, is to improve processes, business practices, use tools - PCs, technology, warehouse automation equipment, - and always, if possible, let the business grow without having to add as many people, as opposed to cutting hundreds and hundreds of people to get efficient."

While the first and second strategies deal with operations, the third focuses directly on the one part of the business it has little control over - the customer.

"Some of these sound like pretty common words, but one of our real challenges is we sell small, medium and large customers using multiple brands and multiple channels," Nelson says. "The customer looks at Office Depot and says, 'Look I want to buy over the Internet one day, go to the store the next day, have a sales person call me the third day and send me a catalog on the fourth day And when I buy from you, I want you to recognize me no matter how I bought, when I bought and what I bought. They don't, want the barrier to be, 'Well you've got to understand,

you're a retail customer and we don't know who you are because that's the delivery side of the business,' and the delivery doesn't know who you are because that's e-commerce side of our business."

Each of the objectives deals with a different aspect of the company's most important constituencies.

Nelson argues that managing for those three constituencies - employees, customers and shareholders - is one of his greatest challenges. "I think it's probably the most difficult job a CEO has," he says. "If you're publicly held, the short-term demand of investors for performance is intense. And to say it's getting less is just not so. You just have to look at the average tenure of the CEO of a publicly held company In the last four or five years, it's gone down dramatically Investors just have short frames. They want results and they want them now, period. And if you don't produce results, somebody else is going to get up and produce them for you. So you have to blend dig because the shareholders interests are not always the best interests of the company How do you blend those together?

"When I became CEO, the company by any standard was underperforming The stock was at a 10- or 12-year low. Cost growth was significantly outpacing revenue growth. Our profitability had dropped to record low levels. You could have argued that we had lots of excess people, but that it is lots of people because our volume had dropped; we hadn't addressed the number of people we employed."

Nelson addressed that issue, but not in the way many might have expected.

"I frankly refused to go through with a hatchet and cut out hundreds of jobs," he says. "I just wouldn't do it. Now, if you were a shareholder, you would say, why didn't I do that? There would be immediate cost returns. I said because I want a culture here, and well grow into this. Well grow ourselves out of this problem.

"We've had to let some people go. Don't misunderstand me; we're not perfect. So those are conflicting goals. I try to get them in harmony as much as I can, to get as much harmony as you can between the interests of shareholders and the interest of employees. And customers in that regard sit square in the middle."

Nelson says trying to maintain that harmony requires a constant tradeoff.

"The most difficult decisions I make are those," he says. "It's short-term or longterm. There are things I would do as a CEO if I had more time to do them."

One thing the company did do was expand its overseas operations. Its fifth objective is to excel in Europe, which, with the June acquisition of Guilbert S.A., accounts for about 25 percent of the company's revenue.

"This is a company that had an outside sales force in nine countries and sold the medium and large companies in Europe," says Nelson. "The integration of that acquisition is critical to our success. It virtually doubled our size overnight. It makes us, times two, the biggest compared to our next largest competitor. Whenever you buy a company that is equal our size, you have to be first concerned about culture - the integration of people and cultures and organization and then the business.

"We focused first on the people and the culture, then the business, and then used that as a platform to keep what today we think is an insurmountable competitive lead in Europe."

There is no particular order to the strategies, according to Nelson, but in hindsight, he says, had there been an order, he might have put the next one first.

"The sixth one is we talk about a high-performance organization with superior leader ship,'' he says. "If I had thought through priorities, I might have listed this one as first only because without great leadership and I don't just mean the CEO of the company or its president and vice presidents - I'm talking about leadership at all levels, you simply today can't excel. Most people would say there is a glut of workers. Unemployment in this country is relatively high and in Europe the same, but anything you read about the future, you read about a shortage of skilled work forces in the future.

"Ulitmitely, I believe the only true differentiation a business can have is its culture. Its business model for the most part, at least in our business, is replicable. We don't own any patents or we don't manufacture anything. You can buy similar products, if not identical products, every place from Wal-Mart to Staples to Costco to Walgreens in this country, and as many places in Europe as well. Therefore, its leadership that sets the tone that establishes a great place to work, shop and invest, and to do that, you simply have to invest in leadership."

While Nelson leads the company and is responsible for the ultimate direction of the enterprise, each of the first six strategies is delegated to someone else in the organization. The final piece of the vision belongs solely to Nelson.

"The seventh was build or acquire to generate breakthrough growth," he says. "We have got a pristine balance sheet. We have, for our business and our industry, an enormous amount of cash. We're sitting here with $1 billion, and in our business, that's pretty enormous on a $13 billion sales company (with) virtually no debt."

Nelson came to Office Depot in 1998, when the company acquired Viking Office Products, of which he was president. He had a two-year contract and thought that would be the limit of his tenure with the company.

"I really got surprised when I was asked to be the CEO of the company," Nelson says. "But by the time I'd been asked, I had an indepth knowledge of the company knew the shape of the company and its key issues. I understood where the board was with the company, having been on the board side, and I had a really clear perspective what I wanted to do first. And I've never wavered from that." HOW TO REACH: Office Depot, www.officedepot.com