SOLUTION: Kings College London Local Profitability Model for an Enterprise Questions

For the exclusive use of S. Abu-Thnain, 2021.
KEL612
Revised February 26, 2016
MEGHAN BUSSE AND JEROEN SWINKELS
Enterprise Rent-A-Car
History
The American car rental industry was born on August 20, 1916, when Josiah Ellis “Joe”
Saunders, an entrepreneur living in Omaha, Nebraska, ran a seven-line classified ad offering
“Automobiles for Hire.” Saunders’s fleet consisted of one vehicle—a Model T Ford—that he
rented for ten cents per mile.
The industry Saunders created grew dramatically with the advent of commercial air travel
after World War II. In 1957 in St. Louis, Missouri, Jack Taylor founded the company that would
become Enterprise Rent-A-Car (named after the aircraft carrier on which Jack had served as a
pilot in World War II). Jack, a successful sales manager at a Cadillac dealership, started the
company to lease cars, but within a few years he discovered a lucrative market for short-term
rentals.
Jack focused Enterprise on the local rental market, setting up offices in neighborhoods rather
than at airports. He believed that increasingly car-dependent Americans would welcome a local
option for renting cars when their own vehicles were being repaired. This was the Enterprise
way—“convenient local rentals right where customers live and work.”
After court decisions in 1969 required American insurance companies to begin reimbursing
for auto rentals while an insured owner’s car was being repaired after an accident, Enterprise
began cultivating referral relationships with major insurance companies. This move brought in
more business for Enterprise and enabled insurance companies to offer enhanced service to their
policyholders.
In 1980 Jack Taylor stepped down as president of Enterprise and promoted his son, Andy, to
take his place. Under Andy’s management, Enterprise embarked on two decades of rapid
expansion, frequently growing revenue and locations more than 15 percent annually (Exhibit 1).
By 2004 the company claimed that 90 percent of all Americans lived within fifteen miles of an
Enterprise rental office.
In 2010 Andy was chairman and CEO of Enterprise Holdings, which was 98 percent owned
by the Taylor family. Enterprise Holdings (comprising the Enterprise, National, and Alamo rental
brands) was the seventeenth largest privately owned company in the United States, with more
than $12 billion in revenue. Had it been publicly traded Enterprise would have ranked number
185 in the Fortune 500. Enterprise was not required to reveal its earnings because it was a private
©2012 by the Kellogg School of Management at Northwestern University. This case was prepared by Greg Merkley ’84 under the
direction of Professors Meghan Busse and Jeroen Swinkels. Cases are developed solely as the basis for class discussion. Cases are not
intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. To order copies or
request permission to reproduce materials, call 800-545-7685 (or 617-783-7600 outside the United States or Canada) or e-mail
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transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of
the Kellogg School of Management.
This document is authorized for use only by Sultan Abu-Thnain in TGM 545 Global Leadership and Strategy/Ramaswamy (MGM SP21) AM taught by Kannan Ramaswamy, Thunderbird
School of Global Management from Jan 2021 to Apr 2021.
For the exclusive use of S. Abu-Thnain, 2021.
ENTERPRISE RENT-A-CAR
KEL612
company, but an industry adage held that “there are two types of rental car companies: those that
lose money and Enterprise.”1
The Enterprise brand had more than 6,000 rental locations in the United States and a fleet of
850,000 cars in service. Enterprise had been the largest rental car company in the United States
since 1994, and by 2010 Enterprise Holdings accounted for nearly half of the rental market and
was more than twice the size of Hertz, the number two competitor (Exhibit 2).
Human Resources
In 2010 Enterprise employed 68,000 people, virtually all of whom had graduated from
college or university. Enterprise hired more university graduates than any other company in the
United States; in 2011 it planned to recruit approximately 8,500 new graduates from 1,000
campuses. Forty percent of these new hires would come from employee referrals.
An executive described the skills the company was seeking: “Enterprise is looking for
individuals who are goal-oriented, and exhibit good problem solving ability, leadership and
communication skills, sales and customer service skills, a strong work ethic, and flexibility.”2
Enterprise consciously did not target the “best and brightest” students, the usual targets for
corporate recruiters. In the unvarnished words of another executive, “We hire from the half of the
college class that makes the upper half possible. We want athletes, fraternity types—especially
fraternity presidents and social directors. People people.”3 In the autobiographical words of one
vice president, “Nobody ever went to college planning to go into the car rental business. . . . Then
a time comes when that’s the opportunity that presents itself, and you grab it.”4
Enterprise offered these college graduates more than simply a paycheck—it gave them an
opportunity to build a well-paying career, provided they were willing to work hard and learn. Pay
for trainees was modest—in 2010 a new employee generally earned about $35,000 per year when
overtime pay was included (trainees were paid on an hourly basis). Although the dress code was
professional (white shirt and ties for men and business suits for women), the work was anything
but: trainees spent their days waiting on renters, washing and cleaning cars, picking up customers,
and handling paperwork. Despite these apparent drawbacks, the company consistently appeared
on the BusinessWeek list of the 50 Best Places to Launch a Career.
Enterprise dubbed its structured program of training and career development an “MBA
without the IOU.”5 New employees typically had completed the training program and become
management assistants in a branch by their one-year anniversary, and they could be eligible for
promotion to assistant managers within two years. The program generated substantial turnover:
1
Gianna Jacobson, “Rental Car Giant Successfully Shuns Industry Shakeout,” New York Times, January 23, 1997.
Scott Shrum, “Looking for Amiable Jocks,” Hire Education (blog), Wall Street Journal, February 3, 2011, http://blogs.wsj.com/hireeducation/2011/02/03/looking-for-amiable-jocks.
3
Brian O’Reilly, “The Rent-A-Car Jocks Who Made Enterprise #1,” Fortune, October 28, 1996, http://money.cnn.com/magazines/
fortune/fortune_archive/1996/10/28/203910/index.htm.
4
Ibid.
5
Kirk Kazanjian, Exceeding Customer Expectations: What Enterprise, America’s #1 Car Rental Company, Can Teach You About
Creating Lifetime Customers (New York: Currency Doubleday, 2007), 96.
2
2
KELLOGG SCHOOL OF MANAGEMENT
This document is authorized for use only by Sultan Abu-Thnain in TGM 545 Global Leadership and Strategy/Ramaswamy (MGM SP21) AM taught by Kannan Ramaswamy, Thunderbird
School of Global Management from Jan 2021 to Apr 2021.
For the exclusive use of S. Abu-Thnain, 2021.
KEL612
ENTERPRISE RENT-A-CAR
25 percent of new hires left within the first six months, and an additional 25 percent left within
two years.
Promotion to branch manager, a general management position with almost as much
independence as a franchisee, took several more years depending on performance and the
availability of branch manager positions. At this stage some employees opted to move into
functional positions in the corporate division. Successful branch managers could be promoted to
area managers (overseeing about four branches) and then to group managers (responsible for
about five areas or twenty branches), and finally to vice presidents.
Figure 1: Enterprise Career Path
Source: “Enterprise Rent-A-Car: Recruitment and Selection at Enterprise Rent-A-Car,” The
http://www.thetimes100.co.uk/case-study–recruitment-and-selection-at-enterprise-rent-a-car–96-339-1.php.
Times
100,
Edition
14,
Enterprise filled its managerial posts exclusively through internal promotion. As a result,
every employee—except for a few specialists in IT, finance, and legal—had started working as a
trainee in a branch. “What’s unique about our company is that everyone came up through the
same system, from the CEOs on down . . . 100 percent of our operations personnel started as
management trainees,” said an Enterprise vice president.6 Even CEO Andy Taylor went through
the same program. “We’ve all had our ties sucked into the vacuum,” he said.7
While individual performance was essential to advance within Enterprise, the company tied
eligibility for promotions and corporate recognition to team performance: for example, even
outstanding employees could not be promoted or given awards if their branch was below the
corporate average in customer satisfaction. Managers could not succeed at Enterprise without
learning to help others around them succeed. During their first year trainees began mentoring
newer hires as a way to help further their own knowledge, but once they were promoted to
6
Paula Lehman, “No. 5 Enterprise: A Clear Road To The Top,” BusinessWeek, September 18, 2006, http://www.businessweek.com/
magazine/content/06_38/b4001609.htm.
7
Jacobson, “Rental Car Giant Successfully Shuns Industry Shakeout.”
KELLOGG SCHOOL OF MANAGEMENT
3
This document is authorized for use only by Sultan Abu-Thnain in TGM 545 Global Leadership and Strategy/Ramaswamy (MGM SP21) AM taught by Kannan Ramaswamy, Thunderbird
School of Global Management from Jan 2021 to Apr 2021.
For the exclusive use of S. Abu-Thnain, 2021.
ENTERPRISE RENT-A-CAR
KEL612
managers their mentoring success was tracked, including who they promoted and how those
employees performed in their new jobs.
Performance-based compensation was standard for all positions beginning with assistant
managers and continuing up the organization chart to the CEO. Enterprise used a range of
metrics, including branch profitability and customer service scores, as the basis for awarding
substantial monthly bonuses. Incentive pay accounted for up to 20 percent of branch managers’
pay, which made them keenly aware of even the smallest expense that affected the bottom line.
As one company executive stated, “There isn’t a single Enterprise branch where the manager isn’t
worried about whether lights are on that shouldn’t be because the money to pay the electricity bill
is coming directly out of their paycheck.”8
For higher-level general managers, bonuses made up 80 percent of their total compensation.
Some corporate officers received 99 percent of their pay in some form of variable compensation,
which was based 75 percent on the performance of their operating units and 25 percent on overall
corporate performance. For some at the top of the organization, total compensation was in the
millions.
Sales and Marketing
Enterprise branches typically opened at 7:30 a.m. and closed by 6:00 p.m. The offices, which
were generally not located in prime retail space, were staffed with five to seven generalist
employees who managed a fleet of about 125 cars. Their small size was intentional and carefully
maintained—once a branch’s fleet grew to more than 150 cars, Enterprise would establish a new
office nearby and divide the sales territory.
Branch managers ran their offices as profit centers and had the authority to determine fleet
size, open branches, sell used cars, and—within limits—set rental prices, which were among the
lowest in the industry. Andy Taylor was referring to the autonomy of branches when he described
Enterprise as a “confederation of small businesses.”9 Many of Enterprise’s service innovations
were developed by branch managers and then implemented nationally. For example, the door-todoor pickup and drop-off service for which the company was known originated with a branch
manager in Florida.
Each branch office was responsible for increasing sales in its territory. All employees,
including trainees, were given targets for establishing and developing relationships with people
and companies in their territory that could drive business or refer customers. As a result,
Enterprise employees actively sought out and called on insurance agents, insurance claims
representatives, car dealership service managers, repair shop owners, and managers of
corporations. Their visits often took the form of “donut drops” or pizza deliveries; after delivering
the food, Enterprise employees would stay to discuss business opportunities, write rental
contracts, or help serve customers.
8
9
Kazanjian, Exceeding Customer Expectations, 119.
Andy Taylor, “Top Box: Rediscovering Customer Satisfaction,” Business Horizons 46, no. 5 (September/October 2003): 5.
4
KELLOGG SCHOOL OF MANAGEMENT
This document is authorized for use only by Sultan Abu-Thnain in TGM 545 Global Leadership and Strategy/Ramaswamy (MGM SP21) AM taught by Kannan Ramaswamy, Thunderbird
School of Global Management from Jan 2021 to Apr 2021.
For the exclusive use of S. Abu-Thnain, 2021.
KEL612
ENTERPRISE RENT-A-CAR
Enterprise did not do much national advertising compared with airport-focused companies
like Hertz and Avis. Branches were charged for corporate overhead, which included advertising,
so costly campaigns faced resistance from managers who were trying to maximize local
profitability. This was the case for Enterprise’s first advertising campaign in 1989. Conceived as
a way to reassure insurance companies that Enterprise was financially stable, the “We’ll Pick You
Up” campaign—which introduced the now-iconic image of an Enterprise car wrapped in brown
paper, traveling up a hill to pick up a customer—was implemented by then-chairman Jack Taylor
over the objections of managers.10
Figure 2: “We’ll Pick You Up” Advertisement Image
Culture and Values
Enterprise’s corporate culture reflected the traditional Midwestern values and approach of its
founder, Jack Taylor. “Our culture has really been key to our success as a company,” Andy
commented. “There is an entrepreneurial spirit at Enterprise that truly is second to none in the
industry. It’s been that way since the day my father founded the company, so I am really quite
proud to have inherited this culture and to be able to grow and strengthen it.”11
In 2002 the company formalized the following statement of the Enterprise founding values:
1. Our brand is the most valuable thing we own.
2. Personal honesty and integrity are the foundation of our success.
3. Customer service is our way of life.
4. Enterprise is a fun and friendly place, where teamwork rules.
10
Ibid.
“Straight Talk From the Top: An Interview With Andy Taylor, CEO of Enterprise Rent-A-Car,” Black Collegian, February 2004,
http://www.black-collegian.com/issues/2ndsem04/straighttalk2004-2nd.shtml.
11
KELLOGG SCHOOL OF MANAGEMENT
5
This document is authorized for use only by Sultan Abu-Thnain in TGM 545 Global Leadership and Strategy/Ramaswamy (MGM SP21) AM taught by Kannan Ramaswamy, Thunderbird
School of Global Management from Jan 2021 to Apr 2021.
For the exclusive use of S. Abu-Thnain, 2021.
ENTERPRISE RENT-A-CAR
KEL612
5. We work hard . . . and we reward hard work.
6. Great things happen when we listen . . . to our customers and to one another.
7. We strengthen our communities one neighborhood at a time.
8. Our doors are open.
Andy emphasized the importance of customer service among the company’s values: “This is
a business of details, not brilliance. Our customers don’t care if we have the best computer
system. They want someone to look them in the eye and ask, ‘How can I help you?’”12
Honesty was more than just a slogan within Enterprise. A company vice president observed,
“The Taylor family believes you can live through any mistake, but you can’t survive a lie.”13
When Enterprise executives were integrating the employees of Alamo and National, who had not
undergone the same training and socialization as Enterprise staff, they told the new employees
they could expect straight talk and an open dialogue from their new bosses; topping the list of
what the company expected in return was honesty and integrity.
Enterprise trained its managers to identify and reduce “demotivating factors” such as poor
organization, lack of feedback, misunderstanding a task’s importance, and lack of consequences
for poor performance. To address these factors, Enterprise branches worldwide used a system of
peer feedback known as “The Vote.” Once a week, all team members in a branch ranked
themselves and their peers from best to worst based on the quality of their customer service
during the previous week, providing specific examples of good and bad performance. The
results—both good and bad—were shared with everyone in the branch to reward excellence and
identify those who needed additional motivation. The names of the best and most improved
employees were also communicated to the entire region as a way to recognize those who were
delivering exceptional service.
The former athletes and fraternity presidents thrived in the competitive Enterprise
environment; managers were encouraged by the home office to place bets with each other on staff
performance, with the loser paying for dinner or working extra hours at the winning branch.
“We’re this close from beating out Middlesex,” said one area manager from New Jersey. “I want
to pound them into the ground. If they lose, they have to throw a party for us, and we get to
decide what they wear.”14
Many trainees liked the environment, too. “Even though you are dealing with a lot of angry
customers and have to dress in professional attire, all the employees treat each other like family
and the environment is quite nice,” wrote an anonymous commenter on a website describing the
organizational culture of the company. “Enterprise is a family run business, and it treats the
employees like family too. They want you to have a good work/life balance as well as career
outlook.”15
12
Jacobson, “Rental Car Giant Successfully Shuns Industry Shakeout.”
Les Landes, “Cracking the Culture Code,” Communication World, November–December 2008, http://www.landesassociates.com/
pdfs/CWNovDec08_InsideOut_Landes.pdf.
14
O’Reilly, “The Rent-A-Car Jocks Who Made Enterprise #1.”
15
Anon., July 8, 2008, comment on “Enterprise Rent-A-Car (Culture),” FD Career, http://www.fdcareer.com/cache/view/2061/3/
heaviest/all/Enterprise%20Rent-A-Car/Culture.
13
6
KELLOGG SCHOOL OF MANAGEMENT
This document is authorized for use only by Sultan Abu-Thnain in TGM 545 Global Leadership and Strategy/Ramaswamy (MGM SP21) AM taught by Kannan Ramaswamy, Thunderbird
School of Global Management from Jan 2021 to Apr 2021.
For the exclusive use of S. Abu-Thnain, 2021.
KEL612
ENTERPRISE RENT-A-CAR
However, the Enterprise culture was not a good fit for everyone. Another website discussing
working conditions contained less laudatory assessments of the company; wrote one former
manager, “Treat you great until you get into management, and then they work you into the
grave.”16 Another former employee wrote:
The employment atmosphere is horrible there. The culture is overtly sports, competition,
alcohol, and sexist. Quite a bit of ageism there as well. They’re always hiring because
they always have turnover. People quit right and left. If you’re a Type A hyperkinetic
personality who thrives on beating out your opponent, even if that opponent is your
coworker/teammate, …
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