Article

Manager's Journal: September 11's Loyalty Dividend

Par Frederick F. Reichheld

First published on septembre 10, 2002
min


It's difficult to remember a time when the ties that bind in business—between companies and their customers, employees, suppliers and shareholders—have been under greater strain than they are today. And yet, on the anniversary of the terrorist attacks, some companies that put customers and employees ahead of financial considerations are stronger than they were a year ago. Companies like Enterprise Rent-A-Car, Southwest Airlines and Dell are leading their sectors in a struggling economy. The values that led Enterprise to waive drop-off fees for one-way rentals last September, or Southwest to keep employees on the payroll and maintain flight schedules, can, in fact, strengthen the bonds that keep companies intact and responsive in difficult times. Quite apart from the hard metrics of financial performance, these companies are excelling in terms of human accounting metrics like customer satisfaction and employee retention. The principles of loyalty can give companies the kind of compass they need to stay on course. Consider the crisis response of Enterprise Rent-A-Car. Enterprise faced a dilemma after Sept. 11, as stranded travelers desperately sought cars to return to their homes. While the company's business model was built on putting customer relationships first, its neighborhood branch structure lacked the logistics systems to track or offer one-way rentals. Nonetheless, many branch managers made cars available to get their customers back home. What's more, their actions anticipated corporate policy. Alexis Hocevar, vice president and general manager of Enterprise's New Orleans region, explained, "We knew we had to do the right thing and worry about the rest later." Three days after the attacks, with the nation's transportation system still crippled, Enterprise headquarters told its then more than 4,300 U.S. locations to permit out-of-state one-way rentals for stranded travelers and waive or reimburse drop-off fees. Thousands of vehicles in Enterprise's U.S. fleet of 480,000 were displaced. Some were sold, others were retrieved by employees or transported back to branches on flatbed trucks. "There will be losses," said Andy Taylor, Enterprise's chairman and CEO, who stayed in touch with employees via e-mail during the crisis. "But right now we're just concerned about taking care of our customers." The seeds for Enterprise's actions in this crisis were sown a long time ago. In a low-growth business, Enterprise moved past the leaders to become the number one rental-car company in the U.S. in 1996. It has succeeded by finding a niche in the replacement market, building strong relationships with insurers and auto dealers who provide loaner vehicles. But anyone who has rented from Enterprise knows that there is a different attitude among employees there. When new managers gather at Enterprise headquarters for training, CEO Andy Taylor or President Don Ross manage to set time aside to address the group. Managers are rewarded for initiative and they don't profit at the expense of customers or partners. Enterprise's decisions in the aftermath of 9/11 were an extension of this principle. Some executives dismiss the Enterprise philosophy of "put customers first, and employees second, and profit will take care of itself" as disingenuous or naive. But a fundamental component of the Enterprise formula is to pay employees a share of the profits they help generate. With this reward system, profits do tend to take care of themselves. When Mr. Taylor realized that some branch managers were focusing on short-term profitability at the expense of customer service, the company developed a rigorous measure for customer satisfaction by branch and used it for promotions. Many leaders today could learn from Enterprise. One of the lessons of Sept. 11 is that loyalty really counts. Doing business—building relationships—with the kind of people you can rely on pays real dividends in tough times. Now more than ever, our business leaders should demonstrate the value of loyalty—and how they are worthy of it. Mr. Reichheld is a fellow at Bain & Co. and author of "Loyalty Rules: How Today's Leaders Build Lasting Relationships" (Harvard Business School Press, 2001).

It's difficult to remember a time when the ties that bind in business—between companies and their customers, employees, suppliers and shareholders—have been under greater strain than they are today. And yet, on the anniversary of the terrorist attacks, some companies that put customers and employees ahead of financial considerations are stronger than they were a year ago.

Companies like Enterprise Rent-A-Car, Southwest Airlines and Dell are leading their sectors in a struggling economy. The values that led Enterprise to waive drop-off fees for one-way rentals last September, or Southwest to keep employees on the payroll and maintain flight schedules, can, in fact, strengthen the bonds that keep companies intact and responsive in difficult times. Quite apart from the hard metrics of financial performance, these companies are excelling in terms of human accounting metrics like customer satisfaction and employee retention. The principles of loyalty can give companies the kind of compass they need to stay on course.

Consider the crisis response of Enterprise Rent-A-Car. Enterprise faced a dilemma after Sept. 11, as stranded travelers desperately sought cars to return to their homes. While the company's business model was built on putting customer relationships first, its neighborhood branch structure lacked the logistics systems to track or offer one-way rentals. Nonetheless, many branch managers made cars available to get their customers back home.

What's more, their actions anticipated corporate policy. Alexis Hocevar, vice president and general manager of Enterprise's New Orleans region, explained, "We knew we had to do the right thing and worry about the rest later." Three days after the attacks, with the nation's transportation system still crippled, Enterprise headquarters told its then more than 4,300 U.S. locations to permit out-of-state one-way rentals for stranded travelers and waive or reimburse drop-off fees.

Thousands of vehicles in Enterprise's U.S. fleet of 480,000 were displaced. Some were sold, others were retrieved by employees or transported back to branches on flatbed trucks. "There will be losses," said Andy Taylor, Enterprise's chairman and CEO, who stayed in touch with employees via e-mail during the crisis. "But right now we're just concerned about taking care of our customers."

The seeds for Enterprise's actions in this crisis were sown a long time ago. In a low-growth business, Enterprise moved past the leaders to become the number one rental-car company in the U.S. in 1996. It has succeeded by finding a niche in the replacement market, building strong relationships with insurers and auto dealers who provide loaner vehicles.

But anyone who has rented from Enterprise knows that there is a different attitude among employees there. When new managers gather at Enterprise headquarters for training, CEO Andy Taylor or President Don Ross manage to set time aside to address the group. Managers are rewarded for initiative and they don't profit at the expense of customers or partners. Enterprise's decisions in the aftermath of 9/11 were an extension of this principle.

Some executives dismiss the Enterprise philosophy of "put customers first, and employees second, and profit will take care of itself" as disingenuous or naive. But a fundamental component of the Enterprise formula is to pay employees a share of the profits they help generate. With this reward system, profits do tend to take care of themselves. When Mr. Taylor realized that some branch managers were focusing on short-term profitability at the expense of customer service, the company developed a rigorous measure for customer satisfaction by branch and used it for promotions.

Many leaders today could learn from Enterprise. One of the lessons of Sept. 11 is that loyalty really counts. Doing business—building relationships—with the kind of people you can rely on pays real dividends in tough times. Now more than ever, our business leaders should demonstrate the value of loyalty—and how they are worthy of it.

Mr. Reichheld is a fellow at Bain & Co. and author of "Loyalty Rules: How Today's Leaders Build Lasting Relationships" (Harvard Business School Press, 2001).