Please write the

 

question first and then type your answer below it
. Your submission should be within 2-3 pages long excluding the cover page. No external citations needed. Just answer based on your reading of the case. Please format using Times New Roman, 12 font size and single space.

 

1. All car rental companies provide customers with the temporary use of a car. What were major activities that Enterprise engaged in to create its unique rental experience? To what extent were these similar to or different from activities other car rental companies performed. Which of Enterprise’s activities were possible or successful because of locations it had chosen to operate in?

2. What are the key assets (tangible and intangible) that enabled Enterprise to engage in its distinctive set of activities? What did Enterprise do with its assets? Could Enterprise assets be imitated by competitors?

3. Would Avis and Hertz, which had begun to enter the local market in car rental business, be able to replicate Enterprise’s success? Why or why not? Consider how Enterprise’s choice of activities helped it create assets it otherwise may not have possessed.

4. Would the growth in the popularity of Zipcar and other car-sharing services affect Enterprise’s future profitability? What, if anything, should Enterprise do in anticipation of continued growth in car sharing?

5. What could be one core the difference between the business strategy and corporate strategy for Enterprise? Was car sharing a threat to Enterprise’s core local rental business?

6. What were the strengths and weaknesses of Enterprise’s human resource strategy? Was it a mistake for Enterprise to target students in the bottom half of the class? Enterprise experienced high turnover among new hires in the first two years. Was that a problem that should have been addressed?

Please do not use any sources that are available to you other than the case itself. No citations are needed. NO COPYING from INTERNET. Please write all answers in your words.

5-311-508

Revised March 21, 2012

©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 847.491.5400 or e-mail cases@kellogg.northwestern.edu. No part of this publication
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mechanical, photocopying, recording, or otherwise—without the permission of the Kellogg School of Management.

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

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2 KELLOGG SCHOOL OF MANAGEMENT

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.

2
Scott Shrum, “Looking for Amiable Jocks,” Hire Education (blog), Wall Street Journal, February 3, 2011, http://blogs.wsj.com/hire-

education/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.

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KELLOGG SCHOOL OF MANAGEMENT 3

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 Times 100, Edition 14,
http://www.thetimes100.co.uk/case-study–recruitment-and-selection-at-enterprise-rent-a-car–96-339-1.php.

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.”

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4 KELLOGG SCHOOL OF MANAGEMENT

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-to-
door 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
Kazanjian, Exceeding Customer Expectations, 119.

9
Andy Taylor, “Top Box: Rediscovering Customer Satisfaction,” Business Horizons 46, no. 5 (September/October 2003): 5.

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KELLOGG SCHOOL OF MANAGEMENT 5

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.

11
“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.

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6 KELLOGG SCHOOL OF MANAGEMENT

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.”

13
Les Landes, “Cracking the Culture Code,” Communication World, November–December 2008, http://www.landesassociates.com/

pdfs/CWNovDec08_InsideOut_Landes .
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.

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KELLOGG SCHOOL OF MANAGEMENT 7

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, then by all means, get the job.
17

Markets and Competition

The American car rental market in 2010 comprised two segments: the airport market and the
local market. Industry and competitive sources estimated that each segment accounted for
approximately $10 billion in revenue, for a total market of $20 billion.

Airport Market

The airport market included business and leisure segments, both of which were highly
competitive. Airport rental companies competed on price; vehicle availability; brand reputation;
and customer service, which drove innovations such as express rental, in-car GPS, and self-
service return.

In return for the right to provide services at an airport, rental firms paid airport operators
concession fees, which were generally calculated as a percentage of revenue (often around 10
percent) with a minimum guarantee. State and local taxes and facility use fees were also collected
and passed on to customers with the concession fees; these fees could account for up to one-third
of the total price of a rental. Rental companies also paid fixed fees for their customer service
counters, which had to be staffed from early morning until late at night. A substantial number of
airport rental reservations were processed by third-party distributors, who received fee payments,
and travel agents, who were paid a commission (typically 10 percent).

In 2010 Hertz was the number one airport car rental brand in the United States, followed by
Avis (Exhibit 2). Although Enterprise was primarily focused on the local rental market, requests
from customers prompted it to open its first airport location in Denver in 1995. By 2007
Enterprise had more than 200 airport rental offices (compared with more than 5,000 local
branches) and a 7 percent share of the market; later that year it acquired National Car Rental and
Alamo Rent A Car, which together had 13 percent of the airport rental market. At the time of the
acquisition, Andy explained the rationale for the apparent shift in the company’s emphasis: “As
the dynamics of our industry continue to evolve, it’s clear to us that the future belongs to the

16
Brad P., May 2008, comment on “What’s the Company Culture at Enterprise Rent A Car?” Indeed (forum),

http://www.indeed.com/forum/cmp/Enterprise-Rent-a-car/s-company-culture-at-Enterprise-Rent-Car/t7861.
17

GataGorda, January 2010, comment on “What’s the Company Culture at Enterprise Rent A Car?”

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8 KELLOGG SCHOOL OF MANAGEMENT

service providers who offer the broadest array of services for anyone who needs or wants to rent a
car.”

18

As Enterprise began expanding into the airport market, some analysts wondered how well its
approach would meet the needs of business travelers. One frequent flier noted, “Their courteous
and personal style at check-in usually takes an extra five or ten minutes . . . I just want to get the
car and go.”

19
Nevertheless, Enterprise was voted the top airport rental car brand for seven

consecutive years (2004–2010) in the J.D. Power and Associates U.S. Car Rental Satisfaction
Study.

Local Market

Enterprise dominated the local rental market (also called the “home-city” market), with its
6,000 branches covering all fifty states. For several years Hertz had been growing its presence in
this market, too, through a division called Hertz Insurance Replacement Entity. By 2010 it had
1,930 local locations that generated $1.1 billion in revenue, which placed it a distant number two
behind Enterprise. Avis had also expanded its presence in the local market.

The local market served two distinct consumer needs: discretionary rentals and repair or
insurance replacement rentals. As a result, the local rental business was less tied to the cyclical
airline industry and less seasonal than its airport-based counterpart. Local rental prices were
generally lower than rentals at the airport; one estimate put the price of a typical Enterprise rental
at 30 percent below an airport rental.

Discretionary rentals were occasional rentals for leisure and business purposes by customers
who, in the words of an Enterprise slogan, preferred to “buy for the need and rent for the
exception.” Examples of leisure discretionary rentals included a family renting a minivan for a
driving vacation, or an additional car when relatives were visiting. A typical business
discretionary rental was a salesperson renting a luxury car to entertain a client. Regardless of the
circumstance, Enterprise offered door-to-door pickup and drop-off service to all renters.

Unlike discretionary rentals, repair or insurance replacement rentals were unplanned and
involuntary. Customers who had car trouble or had their car damaged in an accident found
themselves at a dealer’s service department or repair shop with no car and a need to get home,
pick up their kids, or meet a client. In these circumstances referrals from managers at these
facilities were very influential. For their part, service managers wanted a reliable provider they
could trust to treat their customers well. Enterprise branches often established onsite offices at
nearby auto dealers and repair shops so customers leaving their cars for repairs could rent a
replacement without leaving the dealership. One service manager at a dealership with an
Enterprise onsite office said, “The Enterprise people are practically part of my staff.”

20

18
“Enterprise Rent-A-Car to Acquire Vanguard Car Rental,” press release, March 30, 2007, http://www.enterpriseholdings.com/

PressReleases/ERAC-Vanguard_Acq_Mar07 .
19

Gary Stoller, “Enterprise Muscles Its Way Onto Airport Scene,” USA Today, December 21, 2006, http://www.usatoday.com/travel/
news/2006-12-21-enterprise-usat_x.htm.
20

Ibid.

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KELLOGG SCHOOL OF MANAGEMENT 9

Insurance replacement rentals were a significant portion of the local market—approximately
$4 billion.

21
Insurance companies paid the cost of a basic rental while a damaged car was being

repaired, but up to 90 percent of renters chose to pay more to upgrade to a larger or more
luxurious vehicle. In 2010 Hertz had a 10 percent share of the insurance replacement business,
and Enterprise accounted for the vast majority of the remainder. One-third to one-half of
Enterprise’s total revenue was estimated to come from insurance companies.

22

Enterprise was a preferred provider for many insurance companies and had full-time
employees on site at its headquarters and local drop-in centers to facilitate bookings. Enterprise
further streamlined operational processes by interfacing its reservation system directly with the
insurers’ computer systems, allowing insurers to book rentals at any Enterprise location for their
clients. As a result, a large insurance company like State Farm—for which Enterprise was a
preferred provider—could book an Enterprise car every nine seconds during every business day
in 2006.

23

Enterprise was so dominant in insurance replacement rentals that insurers had to seek out
alternate providers to ensure they were getting competitive prices. Even governments took action
to balance Enterprise’s strong market position—the state of New York passed a law in 2009
requiring insurance companies to inform customers that they had a choice of car rental providers,
a not-so-subtle swipe at the relationship between Enterprise and its insurance partners.

24

Car Sharing

In 2010 car sharing was an alternative to local rentals in some American cities. Car sharing
enabled a customer to book a car online for a period as short as one hour, walk to a nearby
parking spot, unlock the car by waving a membership card or special key fob in front of a
scanner, and drive away. In addition to a nominal annual membership charge, renters paid an
hourly rental fee that included gas and insurance. A four-hour trip cost between $20 and $45,
depending on location.

25

The concept encouraged drivers to save money and help the environment—not by giving up
driving, but by giving up car ownership. Because car sharing offered the use of a car for short
periods of time as opposed to the typical minimum car rental period of one day, it was attractive
to people who generally relied on bicycles or public transportation but occasionally needed a
vehicle. It also appealed to those who wanted occasional access to a different car than the one
they drove every day.

Car sharing also found early acceptance among universities and corporations—universities
were looking for a solution to traffic congestion problems, and corporations wanted to avoid
leasing and maintaining cars, logging miles, and tracking reimbursements.

21
Author’s estimate based on competitive information.

22
See Carol J. Loomis, “The Big Surprise Is Enterprise,” Fortune, July 24, 2006, http://money.cnn.com/magazines/fortune/

fortune_archive/2006/07/24/8381691/index.htm; Kazanjian, Exceeding Customer Expectations, 129.
23

Kazanjian, Exceeding Customer Expectations, 127.
24

“Rental Car and Insurance Industries Collide,” Crain’s Insider, August 4, 2011.
25

“Where Can I Find Car Sharing?” http://www.carsharing.net/where.html.

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10 KELLOGG SCHOOL OF MANAGEMENT

In 2010 Zipcar was the leading American car-sharing provider with 500,000 members and
more than 8,000 vehicles. Zipcar competed against other for-profit companies (such as Ucarshare
by Uhaul) as well as nonprofit organizations (such as San Francisco’s City CarShare and
Chicago’s iGo). Zipcar’s revenue grew 42 percent in 2010 to $186 million, but its loss widened
from $4.7 million to $14.1 million.

26

Rental companies were also entering the car sharing business. Hertz on Demand, Hertz’s car-
sharing initiative, had announced deals with fifty-one universities and nine cities by the end of
2010. It offered free membership, one-way rentals, and in-car GPS.

Enterprise introduced hourly car rentals in 2005, which effectively provided “virtual cars” to
its individual customers. In 2007 Enterprise launched a business-to-business car-sharing initiative
with a separate, loosely linked brand, WeCar. At the end of 2010 WeCar partners included dozens
of universities, corporate campuses, and municipalities in seventeen states.

Customer Service

In the mid-1990s Enterprise spent more than two years and $10 million researching customer
satisfaction and what its local customers valued in their car rental experience. The research
revealed that Enterprise’s local renters cared about three things: the attitude and helpfulness of
employees, the speed of the transaction, and the cleanliness of the car. If those three things were
done well, customers were satisfied.

More importantly, Enterprise also learned that there was a big difference in repeat purchase
intent between customers who were satisfied and those who were completely satisfied. When
asked, 70 percent of its customers who were completely satisfied said they would rent from
Enterprise again; for customers who were merely satisfied the figure was only 22 percent.

27

Enterprise used these findings to develop a metric called the Enterprise Service Quality Index
(ESQi), which it used as a tool to help the company completely satisfy its customers and gain
their repeat business.

In its final form, ESQi was based on the responses of thousands of Enterprise renters to a
weekly phone survey consisting of just one question: “Overall, how satisfied were you with your
recent car rental from Enterprise?” A branch’s ESQi score was the percentage of its customers
that answered “completely satisfied”; the company’s ESQi was the average of all the branch
scores.

Customers who were not completely satisfied were asked if they would accept a phone call
from the branch manager to resolve their issues. If the answer was yes, the information was
passed to the appropriate manager, who had the authority to do whatever was necessary to satisfy
a customer. As one executive said, “No one has to stop and wonder if they should apologize to a
customer or take charges off their bill to make things right. They just do it.”

28

26
Zipcar had an operating loss in 2009 of $5.9 million; in 2010 the loss was $7.4 million.

27
Kazanjian, Exceeding Customer Expectations, 65.

28
Landes, “Cracking the Culture Code.”

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KELLOGG SCHOOL OF MANAGEMENT 11

Enterprise had always trained its employees to focus on customer service, but initially ESQi
was used only as a diagnostic metric. That changed after an Enterprise officers’ meeting in 1996.
The mood at the meeting was celebratory when it was announced that the company had just
overtaken Hertz as the largest car rental company in the United States, but the ESQi data were
sobering—despite the company’s two-year focus on the measure, customer satisfaction was not
improving and there was still a wide gap between the best- and worst-performing branches. After
the meeting Jack Taylor challenged Andy and the other officers to make Enterprise “the best
company in America to do business with.”

29

The first response to Jack’s challenge was to use ESQi to define eligibility for corporate
recognition, including the company’s most highly coveted awards—only managers with ESQi
scores above the company average were eligible to be considered. Next, a policy was enacted that
no one in a branch with an ESQi score below the corporate average could be promoted. Finally,
ESQi was featured prominently on every operating report so all branch managers could see how
they—and their peers—were performing on customer satisfaction.

30

Andy described ESQi as linking “our employees’ career and financial aspirations with
consistent superior service to each and every customer.”

31
Another executive said, “If your

branch’s ESQi is below the mark, no one in that branch moves forward. If it’s above, everyone
gets ahead. It’s simple. It’s equitable. And it has a big impact on teamwork.”

32

Using ESQi for recognition and promotion also had some unintended consequences. Some
promising managers left the company out of frustration that they were in “ESQi jail” due to low
branch scores and thus could not be promoted. Some managers with good ESQi scores were
promoted into positions they were not fully prepared for, and they required significant coaching
and resources to succeed. Some managers were fired when it was discovered they were altering
the phone numbers of unhappy customers so they could not be surveyed, or otherwise
manipulating the system to improve their scores. However, within about a decade the percentage
of Enterprise customers who answered “completely satisfied” climbed from 67 percent to more
than 80 percent, and the gap between the best and worst groups in the company narrowed from
twenty-eight points to nine points.

33

Technology

Enterprise made significant investments in technology to both facilitate and support its
growth. The company’s IT department, which employed more than 1,400 people and had an
annual budget in excess of $250 million, developed all key systems at Enterprise working closely
with line personnel.

One of these systems was the Enterprise Computer Assisted Rental System (Ecars), which
supported the company’s reservations and operations.

34
Developing its own reservations system

29
Taylor, “Top Box,” 9.

30
Ibid., 10.

31
Enterprise website, “Culture of Customer Service,” http://aboutus.enterprise.com/customer_service.html.

32
Landes, “Cracking the Culture Code.”

33
Kazanjian, Exceeding Customer Expectations, 69.

34
Heather Harreld, “Pick-Up Artist,” CIO, November 10, 2000, http://www.cio.com.au/article/75877/pick-up_artist.

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12 KELLOGG SCHOOL OF MANAGEMENT

not only enabled Enterprise to avoid paying fees to use a shared system, it also enabled the firm
to develop features unique to its style of business. Originally designed in the 1980s, Ecars was
upgraded in the 1990s to include sophisticated internal communication and customer relationship
management features.

The Automated Rental Management System (ARMS) addressed one of the company’s
highest priority projects—connecting its Ecars system with the computer systems of its insurance
partners and the repair shops that performed the work. The original patented system was
described as follows:

When someone gets in an accident and files a claim, the insurance adjuster can log on to

the ARMS website and create a reservation for the client. Meanwhile, through the ARMS

Automotive web application, the auto-body shop can send daily electronic updates on the

status of car repairs. If the repair takes longer than expected, the insurance company is

automatically notified through ARMS. Once the body shop completes the repair and the

customer returns the rental car, ARMS automatically generates an invoice and sends it to

the insurer.
35

Enterprise used ARMS to connect Ecars with the systems of three hundred insurance
companies, which helped it gain preferred provider status with many of them. Its head of IT
called ARMS “the glue that put it all together.”

36
The owner of a competing rental car company

conceded that the ARMS connection “makes it very difficult for any other car rental company to
hook up with an insurance company.”

37
Offering free integration software and support convinced

thousands of car dealers and repair shops to connect their existing business management systems
to ARMS as well.

The management and reporting capabilities of ARMS enabled insurance companies to more
closely monitor the repair status of a customer’s vehicle and shorten the length of replacement
rentals. This saved the insurance companies more money than a small reduction in the daily rental
rate and built credibility for Enterprise. “We provide solutions and reduce the costs associated
with the rental process,” Andy said. “We offer a sophisticated value proposition to our customers
in what is otherwise a commodity-driven business.”

38

Fleet Management

Like every car rental company, Enterprise’s largest expense item was its fleet of vehicles,
which represented approximately half of all operating expenses.

Enterprise purchased more than 7 percent of all automobiles produced in the United States in
2010, making it the largest private buyer of new cars in the world.

39
While other rental car

35
Eric Berkman, “Enterprise Rent-A-Car: Staying Ahead of the Curve with Automated Systems,” CIO, February 1, 2002,

http://www.cio.com/article/30832/ENTERPRISE_RENT_A_CAR_Staying_Ahead_of_the_Curve_with_Automated_Systems.
36

Ibid.
37

“Rental Car and Insurance Industries Collide,” Crain’s Insider.
38

Kazanjian, Exceeding Customer Expectations, 139.
39

Loomis, “The Big Surprise Is Enterprise.”

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KELLOGG SCHOOL OF MANAGEMENT 13

companies had at times been owned by automakers and been their captive customers, Enterprise
had always retained the independence to buy from whichever manufacturers satisfied the needs of
its branches. Once Enterprise had negotiated a final price the cars were sold and delivered from
dealerships near the branches making the purchase.

40
These dealerships often were—or soon

became—referral sources for Enterprise rental customers.

With so much capital invested in cars, the preferred practice for most rental companies was to
negotiate a guaranteed repurchase price at the same time the vehicles were purchased. These cars,
called “program cars,” were returned four to sixteen months later, which relieved the rental
company of the risk of used-car prices. Enterprise, however, decided it would assume the risk of
selling its own used cars: its fleet was made up entirely of “risk cars” with no guaranteed
repurchase price. By contrast, in 2010 risk cars made up 46 percent of the fleet at Hertz and 53
percent at Avis.

Once a car was purchased, Enterprise’s computer system tracked its location and maintained
a detailed service history. In conjunction with efficient operational practices, this helped the
company keep a lean inventory and contributed to its ability to keep cars on the road six months
longer than other rental companies.

41

When it was time to dispose of its vehicles, Enterprise handled all of its own sales. About 60
percent of its cars were sold back to the dealers from which they had been purchased; 20 percent
went to auto auctions; 12 percent (those that had been involved in accidents) were sold for
salvage; and the remaining 8 percent were sold directly to consumers through 140 Enterprise car
sales locations.

42

Andy summarized the importance of Enterprise’s fleet management, saying, “Knowing how
and when to buy, sell, and rotate our fleet has proved to be a tremendous source of economic
strength for Enterprise.”

43

Conclusion

In just over fifty years Enterprise Rent-A-Car had grown from an accidental business to the
leading renter of cars in the United States. Along the way it out-competed industry leaders, defied
industry trends, and adapted its approach to changing market conditions by consistently following
Jack Taylor’s founding philosophy: “Take care of your customers and employees, and the bottom
line will follow.”

44

40
In the United States, franchise laws prohibited manufacturers from directly selling new cars; all sales were required to be made by

dealers.
41

O’Reilly, “The Rent-A-Car Jocks Who Made Enterprise #1.”
42

Kazanjian, Exceeding Customer Expectations, 53.
43

Taylor, “Top Box,” 4.
44

Kazanjian, Exceeding Customer Expectations, xiv.

ENTERPRISE RENT-A-CAR 5-311-508

14 KELLOGG SCHOOL OF MANAGEMENT

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Revenue

($ Billion)

Locations

(000)

Fleet

(x00,000)

Employees

(x0,000)

Exhibit 1: Enterprise Growth, 1965–2010

Source: Authors, based on data from Enterprise Holdings, http://www.enterpriseholdings.com/siteAssets/Financial_Stability_2010 .

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KELLOGG SCHOOL OF MANAGEMENT 15

Exhibit 2: Rental Car Revenue by Company, 2010 (U.S. Market)

Source: Auto Rental News