Profit Through People: The Enterprise Model of Decentralization and Extreme Customer Care
In one of my previous newsletters, I wrote about the American rental company Enterprise and their relentless customer focus through a highly decentralized organization. I described how Enterprise aims to create lifetime customers by focusing on a two-step common-sense business approach: Take good care of your customers, and treat your employees like owners. But I learned more.
We see that most self-managing companies consistently follow a similar simple recipe for doing business, resulting in financial success:
happy customers + happy employees = profit.
It sounds simple, and it is. Successful customer retention means building personal relationships with customers with the goal of keeping them for life. This approach works very well because it’s based on common sense.
- By taking good care of your customers—focusing on customer service ahead of profits—you earn their loyalty, and they repay you by doing business with you repeatedly.
- By treating your people like owners, you provide them with the autonomy to pursue opportunities that keep your customers happy. Feeling like owners, they have incentives to grow the business beyond everyone’s expectations.
This simple business approach shows that customer satisfaction isn’t a soft management issue; it is crucial for business and has a direct impact on the bottom line.
In the newsletter, I mentioned that this is one of the things I learned while reading Kirk Kazanjian’s book "Exceeding Customer Expectations," a case study about the car rental company.
Additionally, I learned four other key points on how Enterprise breeds an extremely customer-focused workforce that many self-managing organizations can learn from:
- Decentralize into a collection of entrepreneurial branches.
- Train people extensively in entrepreneurship.
- Track customer service rigorously.
- Connect customer satisfaction directly to pay.
Decentralize into a collection of entrepreneurial branches
When building a large company, there are two main approaches: creating a hierarchical pyramid with standardized policies and centralized management, or fostering a franchise-like environment where branches and their people operate with entrepreneurial spirit and autonomy.
Enterprise prides itself on choosing the latter by implementing a decentralized approach to managing its operations. They have built a collection of entrepreneurial businesses where everyone has a stake and a say in how things are done. This strategy works well for Enterprise because they can divide the business geographically, with local branches run as individual businesses.
Each region operates its own local branch with significant autonomy. Typically, a local branch manages a fleet of about 110 cars. If a branch becomes highly successful and requires more cars, instead of expanding the existing branch, Enterprise opens a new branch nearby. This practice ensures that no single branch grows too large and allows new branches to develop their own operations from the ground up.
This process continues as demand increases, leading to the creation of more branches. With nearly 7,000 locations now, each branch operates under the direction of a general manager who reports to the corporate headquarters in St. Louis.
While certain areas such as marketing and corporate communications are coordinated at the national level to ensure consistent branding, individual branches operate independently, managing their own financial statements.
Unlike a traditional franchise, employees managing these branches are not required to make any upfront investment. However, similar to a franchise model, the "owner-operators" are compensated based on the profitability of their individual units (more on this later).
Enterprise fosters a management method that values local decision-making and personal investment in the business's success. This approach allows them to grow while maintaining a close connection to local markets and the entrepreneurial spirit that drives success at the branch level.
Train people extensively in entrepreneurship
Enterprise employees are not left to their own devices to become entrepreneurs; the company actively teaches them how to run their branch as their own business.
When new trainees are hired, they are first assigned to a branch office. There, they undergo intensive training in what Enterprise calls the “Business Boot Camp,” where they learn the fundamentals of running a business the "Enterprise Way,' rather than relearning what they were taught in (business) school.
During this training program, employees learn how to manage profit-and-loss reports, control expenses, and implement comprehensive business development and marketing plans. By working behind the counter of their local branch, they also gain firsthand experience in meeting the needs of customers one-on-one.
After completing this training, all employees have the opportunity to run their own branch, taking full responsibility for pricing, hiring, training, and all other aspects of the operation.
Track customer service rigorously
Enterprise consistently tracks customer satisfaction levels to ensure branches prioritize customer service over profit. The goal is to keep customers not just "satisfied," but "completely satisfied." This approach encourages repeat business and generates positive word-of-mouth referrals.
Enterprise discovered a significant difference between "satisfied" and "completely satisfied" customers:
- 70% of “completely satisfied” customers return to do business again.
- Only 22% of “satisfied” customers return to do business again.
Tracking this data requires a robust system to monitor customer satisfaction and hold employees accountable for delivering exceptional service.
Enterprise's system, called ESQi, accomplishes this effectively. It is both comprehensive and straightforward, focusing on two key questions:
- How would you rate your overall experience? (Completely satisfied, satisfied, somewhat satisfied, somewhat dissatisfied, or completely dissatisfied?)
- Would you consider renting from Enterprise again?
Each branch receives its own ESQi score, representing the percentage of customers who report being completely satisfied with the service. The scores from all branches are averaged to determine an overall company score.
ESQi scores are measured continually and shared weekly, with all branches in the region ranked transparently based on their scores. This allows each branch to see its own score and compare it with others in the region.
At the branch level, Enterprise has developed a system called "The Vote." This system is used globally to keep each employee accountable for their branch's ESQi score through an organized ranking process. Each week, colleagues rank all other branch members based on their customer service efforts. They also provide reasons for their rankings to help lower-scoring employees understand how to improve.
This process motivates branch members to hold each other accountable and work collaboratively, making the entire team responsible for each individual’s behavior.
Connect customer satisfaction directly to pay
Enterprise aims to give employees a feeling of ownership by letting them share in the company’s success through a profit-sharing scheme.
The company relies on paying employees a relatively low base salary but promises high potential upsides based on performance. This approach dates back to the company’s early days when they were cash-strapped.
Enterprise pays bonuses on a monthly basis, based on the profitability of the employee's branch (75%) and the overall company (25%) for that month. This balanced approach ensures employees do what’s right for the entire company, not just for their own branch.
Employees at the headquarters in areas such as IT and communications, who support the entire operation, are often offered a choice:
- Receive a set salary
- Receive a lower base salary and a percentage of profits from the entire organization.
Since bonuses are shared monthly, paychecks vary from period to period. When your branch and the organization do well, you share in the profits of the company without having to invest any of your own money (see above). However, this also means that if your branch underperforms or has too many expenses, your earnings will be affected.
This strategy helps attract and motivate employees with an entrepreneurial mindset who are willing to place part of their salary at risk in exchange for a significant potential upside.
However, one risk of tying compensation to the financial performance of the branch (and company) is that it might encourage short-term thinking and motivate employees to cut corners at the expense of customer service. Enterprise mitigates this by tying promotions to delivering good customer service.
ESQi scores are a key metric for determining promotions. Employees at branches with below-average scores will not be promoted until their numbers improve. To be eligible for promotion, a branch must have excellent ESQi scores. Thus, customer satisfaction scores are directly connected to pay and career opportunities at Enterprise.
Conclusion
Enterprise's approach to decentralization and extreme customer focus offers valuable lessons for any self-managing organization.
By decentralizing into entrepreneurial branches, training employees extensively in entrepreneurship, rigorously tracking customer service, and directly linking customer satisfaction to compensation, Enterprise has created a robust management framework that prioritizes both customer and employee satisfaction.
