CASE: I Enterprise Builds On People

When most people think of car-rental firms, the names of Hertz and Avis usually come to mind. But in the last few years, Enterprise Rent-A-Car has overtaken both of these industry giants, and today it stands as both the largest and the most profitable business in the car-rental industry. In 2001, for instance, the firm had sales in excess of $6.3 billion and employed over 50,000 people.

Jack Taylor started Enterprise in St. Louis in 1957. Taylor had a unique strategy in mind for Enterprise, and that strategy played a key role in the firm's initial success. Most car-rental firms like Hertz and Avis base most of their locations in or near airports, train stations, and other transportation hubs. These firms see their customers as business travellers and people who fly for vacation and then need transportation at the end of their flight. But Enterprise went after a different customer. It sought to rent cars to individuals whose own cars are being repaired or who are taking a driving vacation.

The firm got its start by working with insurance companies. A standard feature in many automobile insurance policies is the provision of a rental car when one's personal car has been in an accident or has been stolen. Firms like Hertz and Avis charge relatively high daily rates because their customers need the convenience of being near an airport and/or they are having their expenses paid by their employer. These rates are often higher than insurance companies are willing to pay, so customers who these firms end up paying part of the rental bills themselves. In addition, their locations are also often inconvenient for people seeking a replacement car while theirs is in the shop.

But Enterprise located stores in downtown and suburban areas, where local residents actually live. The firm also provides local pickup and delivery service in most areas. It also negotiates exclusive contract arrangements with local insurance agents. They get the agent's referral business while guaranteeing lower rates that are more in line with what insurance covers.

In recent years, Enterprise has started to expand its market base by pursuing a two-pronged growth strategy. First, the firm has started opening airport locations to compete with Hertz and Avis more directly. But their target is still the occasional renter than the frequent business traveller. Second, the firm also began to expand into international markets and today has rental offices in the United Kingdom, Ireland and Germany.

Another key to Enterprise's success has been its human resource strategy. The firm targets a certain kind of individual to hire; its preferred new employee is a college graduate from bottom half of graduating class, and preferably one who was an athlete or who was otherwise actively involved in campus social activities. The rationale for this unusual academic standard is actually quite simple. Enterprise managers do not believe that especially high levels of achievements are necessary to perform well in the car-rental industry, but having a college degree nevertheless demonstrates intelligence and motivation. In addition, since interpersonal relations are important to its business, Enterprise wants people who were social directors or high-ranking officers of social organisations such as fraternities or sororities. Athletes are also desirable because of their competitiveness.

Once hired, new employees at Enterprise are often shocked at the performance expectations placed on them by the firm. They generally work long, grueling hours for relatively low pay.

And all Enterprise managers are expected to jump in and help wash or vacuum cars when a rental agency gets backed up. All Enterprise managers must wear coordinated dress shirts and ties and can have facial hair only when "medically necessary". And women must wear skirts no shorter than two inches above their knees or creased pants.

So what are the incentives for working at Enterprise? For one thing, it's an unfortunate fact of life that college graduates with low grades often struggle to find work. Thus, a job at Enterprise is still better than no job at all. The firm does not hire outsiders-every position is filled by promoting someone already inside the company. Thus, Enterprise employees know that if they work hard and do their best, they may very well succeed in moving higher up the corporate ladder at a growing and successful firm.

Question:

1) Would Enterprise's approach human resource management work in other industries?

2) Does Enterprise face any risks from its human resource strategy?

3) Would you want to work for Enterprise? Why or why not?