People Over Profits: How Enterprise Drives Success

Kirk Kazanjian, author of Exceeding Customer Expectations, says it’s the little things that mean a lot when it comes to employee engagement

In my mind, there are four basic problems inherent in many companies today: a relentless pursuit to increase profitability at all costs; poor training; a lack of incentives for employees to take good care of customers; and a failure of top management to create a customer-centric culture.

Take the airlines as just one example. Most carriers are so focused on profitability that they’ve added seats to planes, overbooked flights and removed meals to boost the bottom line. In doing so, they’ve made the experience of air travel so uncomfortable that passengers remain frustrated and angry throughout the whole ordeal. At the same time, airlines have done a poor job of training employees how to take good care of customers, and offer no real financial incentive for them to do so. In fact, many airlines are doing all they can to cut employee pay, which leads to low morale. Customers can detect this. Management has failed to cultivate a culture that says, “We’re going to put passengers and employees first.” While there are some notable exceptions, it seems that airlines have instead decided that, “Our goal is to make as much money as possible, with little regard for what is best for our passengers and employees.”

Satisfied Customers Aren’t Enough

Enterprise Rent-A-Car operates in an industry littered with countless failures and a reputation for low employee morale, high turnover, bankruptcies, profit declines and general customer dissatisfaction. Despite this, the company has recorded impressive gains each year for the past five decades. Enterprise has never laid off employees, opens at least one new office every business day and has become the company to watch and emulate when it comes to learning how to really wow your customers.

How has Enterprise done it? Above all, it adheres to an amazingly simply, yet ingeniously effective, philosophy set forth by company founder Jack Taylor back on day one: “Take care of your customers and employees, and the profits will follow.”

Keep in mind that at Enterprise, having “satisfied” customers isn’t enough. The reason is straightforward and backed by research: When you exceed someone’s expectations and bring them to the “completely satisfied” category, they are at least 70% more likely to do business with you again. And repeat business is the lifeblood of every company.

The strategy is clearly effective. Standard & Poor’s calls Enterprise the most financially sound rental car company. In the last decade, workplace surveys conducted in four nations have included Enterprise among the best companies to work for, and its employees are often highly sought by recruiters at other firms – from a variety of industries.

Over the past 50 years, Enterprise has grown from one location in the basement of a St. Louis, MO, car dealership into the largest car rental company in North America and arguably the world. It has gone from one employee to more than 67,000, with annual revenues now surpassing $9 billion and 7,000 branch offices. Enterprise is the most financially sound and profitable company in its industry. Plus, it is known for offering excellent customer service, a trait for which Enterprise has won numerous awards from the likes of J.D. Power and Associates and BusinessWeek.

Owners and Entrepreneurs

Enterprise has developed a system for employee motivation unlike any other I have run across in my years of studying business and customer service practices. It’s a concept I teach other companies from a wide variety of industries since the formula works so well. Indeed, Enterprise has used this approach to launch a portfolio of diversified business doing everything from manufacturing mylar balloons to developing goods for the prison industry.

At its heart, the Enterprise system treats every employee as an owner of the business and pays him or her like an entrepreneur. Business owners, after all, care more about the performance and longevity of their company than anyone else. Their livelihoods, reputations and futures depend on the operation’s success. Since owners are compensated based on the bottom line, they have an incentive to continually come up with new and better ways of doing things, different methods for satisfying and finding new customers, and innovative techniques for cutting costs in practical ways.

On its face, this doesn’t sound all that unusual. Many corporations use a variety of techniques to make employees feel more like “owners.” Some award stock options. Others offer workers the chance to buy stock at a discount and/or give annual bonuses based on both the individual’s and the corporation’s overall performance.

Few do as much as Enterprise to truly allow employees to behave like and be compensated as owners. This feeling of entrepreneurship spurs everyone at the company to perform at their highest potential every day. While the approach and incentives Enterprise uses might appear to be more costly than necessary on the surface, the company’s innovative pay-for-performance plan is really what has made it so successful for such a long time.

The Little Things

To begin with, Enterprise requires all employees to start at the bottom and work their way up. This enables them to get a full understanding of how the business works and provides plenty of experience working directly with customers. Then, workers go through an intensive training program to learn the essentials of delivering excellent customer service. It’s amazing how few companies actually teach these skills to employees. The little things, which cost next to nothing, make such a huge difference. But without proper training, nothing happens.

Then, Enterprise promotes everyone from within. While you continue to earn a modest base salary that doesn’t change, you keep getting a bigger percentage of company profits with each promotion. Enterprise pays out 40% of all profits directly to employees on a monthly basis.

But here’s the key: In order to get promoted, workers must do a stellar job of taking care of customers. Enterprise closely monitors how well each branch does in this area through regular surveys and other testing measures. If you fail to get a high score, you won’t move up. As a result, the company has found a way to financially reward those employees delivering top-tier customer service.

This structure also causes each Enterprise employee to think like a business owner. What’s more, the company empowers workers at all levels to do whatever it takes to make sure customers are completely satisfied. They can offer any type of accommodation (financial or otherwise) without obtaining approval from anyone higher up.

Above and Beyond

In addition to sharing the profits, Enterprise hands out a series of awards to those employees going above and beyond the call of duty. The company further ensures that employees have a good sense of how they are performing on the job through regular evaluations. This kind of feedback is invaluable, since each employee wants to know where he or she stands and everyone responds well to praise.

As noted, Enterprise pays out 40% of its profits to employees. While that might sound like a lot, bear two things in mind. First, the company still keeps 60%, which is a huge margin. More importantly, this ownership structure is what has truly fueled Enterprise’s success. By setting up such a generous incentive program, Enterprise employees bend over backwards to take care of customers, leading to increased business. At the same time, workers are motivated to get out and form new partnerships, thus growing the business even more, because they know that doing so will add to their own bottom lines.

“If I give someone a piece of the action or a bonus based on profits, they are going to do a better job every time,” explains Enterprise Chairman and CEO Andy Taylor.

While most companies see the payroll as a drag on the bottom line, Enterprise has always thrived on spreading the wealth. Much of this has to do with Enterprise founder Jack Taylor’s rationale for why paying good people more money is so beneficial.

“Let’s say you make $100,000 for the business and I give you 10 percent of that, or $10,000,” he offers. “By that logic, if you make us $1 million, you get $100,000. Would I rather have you make the extra $10,000 or $100,000? It’s obvious. I’d rather pay you $100,000. The more you make, the more the business makes. Why wouldn’t I want that to happen?”

‘The Enterprise Way’

Because of Enterprise’s generous pay structure, some executives now enjoy significant pay packages, including a decent handful who draw more than $1 million a year. “Does it bother me that we are paying them so much? No,” insists Jack Taylor. “I think it’s wonderful, because in order for them to get that $1 million, if they are on a 10 percent bonus plan, they’ve got to be generating $10 million for the business.”

Here are a some key points about doing business “The Enterprise Way”:

• Set up a financial structure that gives employees a clear incentive to see the company grow and prosper.
• Provide workers with the freedom to operate autonomously and make their own decisions.
• Base promotions and incentives on how well individual employees are able to manage all aspects of the business under their control, including the profit-and-loss statement.
• Share the wealth, paying part of the company’s profits to employees across all areas of the organization on a regular basis, based on their responsibilities and individual contributions. (Just make it clear up front what percentage they will receive so there are no surprises or disappointments when bonuses are handed out.)
• Once you strike a deal with employees, don’t break it for any reason.
• In a well-structured pay-for-performance system, revel in paying big bonuses to workers. It’s an indication that your company is earning more money.
• As employees take on more management responsibilities, allow them to earn a piece of the profits from each business unit they are in charge of running.
• Encourage everyone to take risks – without the fear of being fired if things don’t work out. Some of the best new discoveries come through taking chances and trying new things.
• You don’t have to hand out company stock to keep employees in the fold and make them perform like business owners, but you must be willing to share part of the wealth that they are helping to create.

Of course, execution is everything. Setting up a program like this isn’t easy and requires a complete reexamination of a company’s entire way of doing business. But once you realize the potential rewards of sharing the wealth, I’m sure you’ll conclude that it’s worth the effort.

Kirk Kazanjian is an expert and popular speaker on the latest trends in customer service and successful business practices. This article is adapted from his latest book, Exceeding Customer Expectations, published by Doubleday. To learn more about Kirk, or to inquire about booking a speech, training, or consulting project, visit www.kirkkazanjian.com.

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