Founded in 1946, Lowe's has grown from a single small hardware store in North Carolina to the second largest home improvement retailer worldwide and the seventh largest retailer in the United States.

The company enjoyed steady growth for many decades, taking advantage of U.S. housing construction booms after World War II and in the 1980s. It served primarily home builders and professional customers until 1982 when it increased its focus on do-it-yourself (DIY) homeowners. Lowe's now has more than 1,675 stores in the United States and Canada and is expanding into Mexico in early 2010. Recently the company embarked upon a joint venture with Woolworths Limited to develop home improvement stores in Australia.

In 2008, Lowe's reported sales of $48.2 billion, but the company, along with others in the home improvement business, has been hit hard by the economic downturn. At Lowe's, the sales of items costing more than $500 fell 16 percent in the second quarter of 2009 and sales overall have been weak for some time. The numbers of customers shopping at Lowe's stores is down only slightly from previous years, but those customers are buying less expensive items as they put aside major renovations in favor of small maintenance projects.

Against this challenging background, CEO Robert Niblock emphasizes the importance of leadership and the need for well-trained employees. We spoke with him at the company headquarters in Mooresville, North Carolina.

Q| Like many businesses in recent times, Lowe's has been battered by the decline in the homebuilding and real estate markets, by foreclosures, by unemployment, and by other fallout from the economy. How is training being used to manage through the downturn and prepare for an economic recovery?

A| Our business is home improvement and two-thirds of what we sell every day is for the repair and maintenance of homes. The majority of our customers are homeowners who need advice about the projects they're working on. Training and development is crucial to making sure we have knowledgeable employees on the floor to help those folks. It's one thing to have the knowledge and skill. It's another to engage the customers appropriately and be able to help them solve the problems they come in with. You also have to have the right management group throughout the company making sure we have an actively engaged workforce in the stores.

Q| Why is engagement important?

A| The reason engagement is so important in our business is that the majority of our customers are homeowners. For a lot of them, the value of their homes and their 401ks has been impacted, as well as their employment outlook, but they still need to maintain their homes. In the past they might have outsourced some of that work but now we're seeing a movement back to do-it-yourself projects. So when homeowners come in, you have to make sure a trained associate is engaging them and has the right communication skills to help them get a satisfactory result for the sweat equity they're going to put into that project or home maintenance task.

If you do that successfully, that's when you get positive feedback from customers who feel pride in their success. In many cases, they go on to do another project around the house.

Q| How do you know the management group is doing the right things to keep the workforce engaged? What do you look at?

A| We look at several things. First of all, we send out customer satisfaction surveys to get feedback from shoppers, and some feedback comes directly to the corporate office. We check with our mystery shoppers to see if an employee engaged them when they came into a store and if that person was able to answer their questions, help them find a product, or give advice on a project. Our field people show up at stores unannounced to observe how our associates are interacting with customers. This information helps us to determine if we have an engaged workforce.

In addition to these external and senior management actions, a key indication of engagement comes from our employees directly. With extremely high participation rates, our annual employee engagement survey provides us with direct feedback from our workforce.

Q| What are you doing to make sure the management team supports the engagement goals?

A| We're actively involved in leadership development for our management team to make sure they have the right skills and the leadership talents and traits to be able to earn the trust and respect of the workforce and to keep them engaged and focused on taking care of the customer.

Our leadership development efforts are a blend of external expert and internal leader - lead courses and workshops, as well as key experiences that are identified through our talent planning processes. To ensure there are no doubts about my commitment to leadership excellence, my staff and I attend leadership development courses and provide feedback on the content.

There are also a number of things we do from a compensation standpoint for employees from the managers to the associates. The management team reviews each store's customer-focused metrics. So for example, if your store is the best from a customer-focus standpoint, there are quarterly incentive payouts for every associate in your store. At the end of the year there's a celebration event with prizes for the top-scoring stores. And there are additional payouts at year-end to associates at the top-performing stores. This breeds a little friendly competition within the districts and regions to make sure they're taking care of customers.

We get feedback from customers when we fall short. The number one priority when that happens is to take care of the situation and make it right by the customer. Then we go back and find the root cause of what happened. We determine if an associate was not adequately trained or simply did not respond appropriately to the customer. We use the information as a learning experience for that particular situation, but also to determine if we need to make changes in our training to prevent it from happening again.

Q| From what you are saying, it seems that your customers may have needs they didn't have before the recession. Did you prepare the associates to take a new approach to customers?

A| We've always prepared our associates, but now it's a matter of degree. Six or seven years prior to the slowdown, there was a lot more outsourcing of home maintenance. For example, customers were outsourcing their lawn maintenance and their painting but now they're doing it themselves. Today you have more DIY customers showing up who didn't grow up doing the work themselves, and they lack experience. We've always been able to help the DIY customer, but where there's a lack of experience, you have to make sure you spend extra time. So it's important that associates are aware that they might be talking to a first-time do-it-yourselfer. We want our associates to recognize that each customer's situation is different and to take the time to give the right amount of advice.

Q| That's an interesting dynamic. You've got less experienced people coming into the store who might require more time as well as people looking for deals because of the economy, so margins are being squeezed at the same time as associates are spending more time per customer.

A| It is a delicate balancing act to make sure you have the right amount of skilled labor on the store floor. It's also complicated by the fact that in many cases home repair or maintenance isn't planned for. Something breaks and you have to fix it that day. That kind of demand is hard to anticipate.

A beautiful thing about the business, though, is that our homes are always going to need repair and maintenance. So if we invest in taking care of the customer, we're investing in the customer franchise and the lifetime business of that customer.

Time after time I have received letters from customers who have come in to get supplies for a small repair. They might have spent less than a dollar for a part. But they're blown away by the fact that a Lowe's associate has invested 20 minutes explaining how to do the repair. These letters often end with the statement that these customers will do all their future home improvement shopping at Lowe's.

Q| You mentioned making sure that your leaders have the right skills. What attributes do you look for in leaders?

A| It depends on where those leaders are in the company, but all leaders should have the skills to be able to communicate, to earn trust and respect, and to be motivated to accomplish the company's goals. We also look for personal skills such as the ability to be self-reflective. And we look for people leadership. Can a person lead a group of people to accomplish common goals and objectives?

As you get to broader roles in the organization, then we look for business leadership. Does a person have the skills and ability to manage an entire section of the business? Has he had the right work experience and formal training along the way?

If he has gaps we'll make sure we help him. If there are gaps, our learning organization figures out how to fill them. We want to develop a well-rounded person who can lead part of the organization and produce appropriate business results and outcomes.

So there's formal training, but to have employees be more seasoned, we might rotate them through different job functions - say from operations to merchandizing - so they understand many facets of the business. This builds managers into well-rounded leaders as they move up in the organization and gain understanding of the complete business. At the end of the day, we want leaders who can help our associates build trust with our customers, while at the same time building trust with their employees.

Q| In your letter to shareholders in the 2008 annual report you said "success would look different" because of the effect of the economy. Did that necessitate any change in leadership development, or qualities you look for in leaders, or the way the company is led?

A| Leadership is even more important during tough economic times. We must not only manage the business to make sure we're taking care of customers' changing needs, but we must also monitor the situation outside.

In a difficult economy, your top line is challenged, so you have to manage your expenses appropriately and pay more attention to the return to shareholders. So we have to take a hard look at expenses. Can we do things more efficiently without having a negative impact on customer service or employee morale? In times like this, we must make sure we have leaders who understand the business and what motivates our people and keeps them engaged. If our leaders can help employees understand the reasons for making changes, they will support those changes, stay engaged, and continue to take care of the customer.

Across the organization, that's what Cedric Coco, our vice president of learning and organizational effectiveness, and his learning organization are trying to do: make sure the leadership has those skill sets and are well rounded. Every day, you have to strive for continual improvement and development. While we've been very successful over our 63 years, we know we've got to be better tomorrow than we were yesterday.

Q| Often CEOs will say that if the top line is growing, then they know that leadership development is working. If your top line starts to stagnate or come down and you're still investing in leadership development, what do you look for to know that you're on the right track?

A| If the top line is challenged, you have to look elsewhere. One place to look is customer satisfaction scores and feedback from employees about whether or not management is headed in the right direction. Do we have the right leaders in the stores? Do associates feel they have the skills and job training they need to be able to address customers' needs adequately? Those are internal measures.

Externally, we look at market share. In an environment like this, when the top line is challenged it's important to be gaining market share to be sure you're getting a bigger piece of the pie. And you look at your competitors and how your performance compares to theirs. These are metrics investors would be interested in.

So as you pull all that together, you get a sense of whether things are moving in the right direction. If they are, we don't spend time patting ourselves on the back, but instead we look where we have fallen short. No matter how well we're doing, there are always areas for improvement.

Q| You mentioned earlier that leadership is especially important in tough times. What about employee development?

A| I think they go hand in hand. Leadership is important but employee development is critical because being in the retail business - unless we've got well-trained people on the floor engaging customers every day - nothing else matters. They're the ones driving the sales and making sure we're addressing customers' needs. If that doesn't take place, we don't have sales at the register and we don't have a reason to exist.

So employee development is critical, but as you would expect, as you're looking at expenses across the organization, training and development will be among them. I think many organizations, ours included, face that challenge. You have to go back and ask "what's not working?" Yes, we're going to invest in training and development, but we're going to eliminate those things that don't get us a big enough payback, or where our associates are telling us it's not working.

Cedric has brought us a fresh set of eyes. He often asks if there's a better way, or why we're doing particular things. His objective is to help find more effective ways to accomplish our goals.

Q| When the economy turns around, do you think some of the things that were eliminated would be put back?

A| I hope not. From the late 1990s to 2006 we went through an incredible growth phase. We opened a significant number of stores; we added a significant number of employees; and we delivered training based on the environment we were in. Today, we're challenged from a top line standpoint and we have looked across the entire organization to improve our policies, procedures, and processes to make ourselves more efficient. In most cases, those changes will pay a permanent dividend. So if things improve and the top line goes up, that doesn't mean you put back programs that were cut because they were inefficient.

Q| What do you expect from a person in the role of learning leader?

A| You certainly want someone who has all of the basic HR skills in leadership and development. And you want him to have the ability to know the organization, assess its needs, and put plans in place to take the organization in the right direction. The key thing about a business like ours is to ensure that the learning leaders understand the business and are willing to take the time to do that. If you don't understand the business we're in or what the customers are looking for, it's hard to make sure you're developing the right programs or eliminating the ones that are ineffective.

Q| There's a trend to use Twitter and Facebook and other social media for informal learning. We know that most learning in organizations is informal. What are your feelings about the use of social media to facilitate informal learning? Does the organization encourage it?

A| Today much of our associates' learning takes place through informal learning in the stores. For example, if you're hired to work in plumbing or electrical or paint, you take various training programs and certification exams to make sure you've got the basics you need to work in a particular area. But it's not uncommon to learn informally from the person working in the next aisle who previously was a plumber or an electrician or a painter. They have a tremendous amount of hands-on knowledge and experience, particularly when it comes to solving customer issues regarding repair and maintenance.

We don't have a formal process for using social media for learning, but we are talking about it. Could a customer contact our call center about a particular issue? Or could our associates turn to each other for help answering a customer's question? We have more than 200,000 employees, and it would benefit our associates to be able to garner the knowledge of those professionals. We think it could be an effective tool in the future if designed and used appropriately.

Q| Any advice for other companies during this tough economic environment?

A| In a tough environment, a company needs great leadership. We live in a competitive world and we have to continually grow and improve to thrive as a company and obtain an adequate return for our investors, so I think having well-rounded programs for leadership and development across the entire organization is vital. You also have to make sure you have the right leadership and management teams in the stores. That is probably the most impactful thing we can do.

We hope that tomorrow we're going to be a bigger business than we are today. The challenges are going to be larger too. The leadership team of tomorrow is going to have to be more capable than the leadership team of today to address those challenges, so we must manage their development with that in mind.t+d