The digital revolution has dramatically affected how rental-car companies do business, as Hertz CEO Mark Frissora explains.
Since joining Hertz as chief executive officer, in 2006, Mark Frissora has helped negotiate a major merger, implemented new technologies that will change the company’s business model, and, most recently, announced plans to move Hertz’s headquarters from New Jersey to Florida. Hertz, whose fleet consisted of just 12 Model T Fords when the company began in 1918, is now the largest publically traded rental-car operator in the United States. In an interview with McKinsey’s Rik Kirkland, Frissora discusses the enduring importance of understanding what’s happening on any company’s front line, how the car-rental business is continuing to evolve, and why organizations ignore technology at their peril.
McKinsey: Hertz has nearly 41,000 employees and more than 10,000 locations worldwide. How do you balance the need to think strategically with the challenges of running such a logistically complex business?
Mark Frissora: I often hear people say, “As a CEO, you can’t get too involved in the day-to-day operations of your business. That’s micromanaging.” My response is, “I have to get ‘too involved’ in the business because I’m setting the strategy. If I don’t understand the business, then I’m a poor manager and I’ve failed as a leader.” It’s critical that leaders spend a lot of time where the work actually gets done—that they get into the guts of the business and see what happens there. The further down the chain you go, the easier it is to see how your strategy might not work the way you’d intended. You might even discover that the strategy itself is backwards. You always walk away with a new insight or a new opportunity.
McKinsey: How do you ensure that you spend enough time on the front line?
Mark Frissora: I’m on the road about 60 percent of the time. I always try to stop in at the Hertz counter in the airport. And about three times a year, I take my whole team to visit our call center. We have lunch with about 25 call-center supervisors, and then we spend an hour listening to different types of customer-service calls—roadside assistance or reservations, for example. It’s critical to plug yourself into the call centers.
McKinsey: What about your leadership team? How do they stay in touch with the rest of the organization?
Mark Frissora: Hertz’s 19 most senior managers, myself included, do formal “skip level” reviews at least twice a quarter. I’d done this at other organizations, and it works well. We sit with staff people on the front line—their managers aren’t there, and neither is anyone from HR. We ask, “If you were CEO for a day, what would you do? What’s working right now, and what’s not working? If you had a magic wand, what would you change about Hertz?” The leaders in all of our functional areas do this—IT, marketing, sales, operations, accounting. They all go to wherever the work “gets done” in their department. So the person who leads operations might sit with our mechanics or with the people who handle vehicle returns. The CFO goes to Oklahoma City, where several hundred staff members manage our accounts receivable. We ask, “What’s working? What’s not working?” It’s a great way to see first-hand what’s happening in your organization.
McKinsey: When the skip-level review uncovers a problem, what do you do?
Mark Frissora: It’s important that I listen and help facilitate change, but I can’t own the problem and I can’t create the solution. That’s up to each department’s management team. So after the skip level, I sit with the management team and ask them to come up with a plan, in writing. The written plan goes to me, and it goes to the frontline team as well. Once a quarter, the senior-leadership team gathers off-site and we compare notes about what we learned from our individual skip reviews. We talk about what’s actually happening at the operating level and what we need to fix.
McKinsey: As you suggest, getting operations right is part of the success equation. What about the competitive environment?
Mark Frissora: In 34 years, I’ve never seen a more volatile business environment than the one we are operating in today. Technology and social media have completely changed the concept of competitive advantage. For a long time, companies could test and experiment; they could pilot a new concept or product, but they could keep it confidential. Now, whatever you do and say is almost instantly transferable to your competitors. Pricing strategies, marketing strategies, anything you pilot, even in a small market, immediately gets into your competitors’ hands on a global basis. Unless you can patent something, the first-mover advantage—at least the way we learned about it in business school—lasts a very short period of time. What used to be a two-year competitive advantage is two minutes today. This is all due to the exponentially increased use of the Internet, social media, and other technology-based advances.
McKinsey: Much of the information that is available to your competitors is also available to your customers. How has that changed the way you operate?
Mark Frissora: Technology is making pricing much more transparent. Online intermediaries are all selling car rentals. Essentially, all they do is use a piece of software that makes it convenient for the consumer to shop and compare, but we generate a lot of revenue through these types of travel intermediaries. And they’re getting better and better at comparing what different car-rental companies offer. There was a time when companies like Hertz could rely on their reputations and their price point to generate bookings. Now we’re in a much more competitive environment and we have to deliver differentiation. We have to market our true value-adds, and then we have to deliver what customers are willing to pay for. There’s no more smoke and mirrors. Again, that’s because of technology.
McKinsey: How have these technologies changed your industry as a whole?
Mark Frissora: Technology is constantly challenging traditional business models, and it happens faster and faster in ways that can be difficult to see. When a new technology emerges, companies need to decide almost immediately whether to adopt it—or they could risk being destroyed by it. Zipcar is a great example. It’s essentially a car-rental company, but enhanced by a new technology. You go online, you find a Zipcar near you, you reserve it, it unlocks remotely, you get in and drive away.
This new way of renting cars would have been easy to ignore; Zipcar was a small player, and only in big cities. But we knew the technology itself—and related developments such as software apps like Uber—would be transformational, and we knew these ideas could move up the value chain and really disrupt business models. So we embraced them, because it’s better to use a new technology to transform your own business than to watch your competitors beat you to it.
So now we’re integrating that disruptive technology into our infrastructure and creating a new business model. Our new mantra is “smart mobility,” which combines technology-enabled flexibility with our push to set the standard for sustainability. I want anyone to access any of our cars by the hour, by the day, anywhere they want it. For example, right now we have Hertz 24/7. But we don’t look at that as just an experiment in car sharing; we look at it as transforming the entire rental industry. So in less than two years, we will have car-sharing technology in 500,000 of our vehicles globally.
McKinsey: What are you doing to build the executive muscle you need to manage and stay ahead of these big technology shifts?
Mark Frissora: One way is that my CIO is not some second-tier executive delegated to the CFO; he’s a member of my executive committee and one of the key direct reports I spend a lot of time with. I’ve also recruited board members from technology companies like Terradata and Facebook to ensure we have deep expertise in things like social media and extracting knowledge from data. To drive innovation, I have a senior vice president for branding and innovation on my leadership team, and I hired three bright twentysomethings in marketing and three in IT and put this cross-functional team under him to redesign all our customer interfaces and make them relevant to a new generation of renters. The broader goal is to continually track and refresh and expand what is technology-enabled in the organization.
McKinsey: How do you create a culture that can handle these kinds of big changes?
Mark Frissora: Most people, including CEOs, have too much pride. Pride gets in the way of what we call TOM—Total Open Mind—which is our shorthand for an entrepreneurial, innovation orientation. We say “No pride allowed. If you’re not in TOM mode, we can’t have this conversation.” I try to surround myself with a team that embraces these same principles, and then I try to drive it deeper and deeper into the organization using our stated values in our management objectives.
We are methodical about making sure our team is aligned on the idea of Total Open Mind. We’re in the service industry, which means we have a high turnover—about 20 percent—so to maintain our culture, we try to recruit people with that TOM mentality. We also regularly assess the team we already have in place to make sure the values we talk about are actually modeled in the organization. We celebrate people who truly have a TOM attitude; we hold them up as examples. By contrast, with people who don’t walk the talk or just don’t have the values, you need to make an example of them as well. You have to make sure that when they leave the company everyone knows why they’ve left.