Pursuing Performance Excellence at Avis Budget

There is no single more important job or initiative in this company than performance excellence.”

These are the words that Ronald L. Nelson, CEO of Avis Budget Group Inc. (ABG), chose when he addressed an assembly of ABG’s top 70 senior executives, asking them to join him in leading every location, operation, and department down the road to performance excellence.

Nearly one year later, ABG is on track to exceed its financial savings goals by more than $10 million. More important, perform-ance excellence has become the way ABG does business, and has positioned the company to meet business challenges more effectively than ever before.

Background

Avis Budget Group’s operating divisions include the vehicle rental operations of Avis Rent A Car System LLC, Budget Rent A Car System Inc., and Budget Truck Rental LLC. ABG operates these brands in the Americas, the Caribbean, Australia, and New Zealand.

Total 2007 revenues were US $6 billion, 78 percent of which comes from U.S. car operations. Avis Budget has a global reach that includes approximately 6,900 car and truck locations operating more than 425,000 vehicles. In 2007, the company completed more than 28 million vehicle rental transactions worldwide.

Objectives and strategy

Operating margins at ABG, like the rest of the rental car industry, have declined during the past few years, due in large part to significant inflation in the cost of rental vehicles (10 to 20 percent per annum for the last three years), in addition to inflationary pressures in other expenses such as wages, benefits, and fuel.

By the end of 2007, these pressures caused ABG’s margins to decline by roughly 50 percent from 2002 levels. This decline was the catalyst for ABG’s senior leadership team to establish new management practices and methods to improve performance. Their strategic plan focused on three core objectives:

• Expand revenue sources

• Optimize their brands

• Capture incremental profits

 

The leadership team collaborated on the means to achieve these objectives. Nelson, along with ABG’s president and chief operating officer F. Robert Salerno, and chief financial officer David B. Wyshner, developed the idea of a companywide process improvement initiative based on proven techniques and best practices. They were determined to engender a systemwide commitment to this approach that would go well beyond all previous process improvement efforts.

At this point, Avis Budget lacked in-house resources for deploying such a large process improvement initiative and coaching and training employees. In March 2007, senior management approached David Myers, ABG’s vice president of financial planning and analysis, to take on a new full-time responsibility and lead this effort as the global deployment leader. Myers was also charged with bringing in outside help to expedite process improvements using methodologies such as lean and Six Sigma. By May, the company had interviewed several candidate firms and selected Breakthrough Management Group International (BMGI), headquartered in Longmont, Colorado, to assist with the initiation.

To be directly aligned with the company’s third core objective, Myers and BMGI were given a clear strategy: Develop an implementation plan to improve company-wide profits by $100 million to $150 million in two or three years while maintaining or improving the quality of ABG’s customer service.

Developing the infrastructure

Myers and John Biedry, the senior engagement leader from BMGI who had been assigned to Avis Budget full time, set out to develop plans, identify projects, and start implementing changes to improve profits as quickly as possible.

Initially, they chose to focus efforts on domestic operations and major office processing functions because early assessments indicated that the biggest opportunities for improvement would come from these areas. Ultimately, their plan of action will cover all ABG departmental operations worldwide.

The team decided to “lead with lean.” Because Avis Budget did not have formal process improvement tools in place, Myers and Biedry believed that the company would attain most of the initial benefits by applying some of the more readily learned techniques—namely lean principles and tools.

The first order of business was to develop the infrastructure to support the recruiting, training, and deployment of the first wave of facilitators of this project—the performance excellence, or as they were called, “PEx” leaders. To speed implementation, several support units (human resources, finance, information technology, and corporate communications) sequestered themselves in a conference room for four days to answer questions that needed to be addressed before setting this plan in motion. These questions included:

• How does ABG define “hard savings”?

• Who is responsible for tracking financial information?

• How will the team identify projects?

• Will the PEx leaders work full time or part time?

• How will PEx leaders be compensated?

 

With these questions answered by senior leadership, it was time to shift the focus to recruiting PEx leaders.

 

Recruiting strategic leaders

With a strong bench of very experienced management employees throughout Avis Budget, the team was able to focus internally to identify candidates who would become trained PEx leaders. BMGI provided the training, as well as lean and Six Sigma Master Black Belt consultants to help jump-start the PEx program.

To achieve its goal of $100 million to $150 million in profit improvements in two to three years, Myers and Biedry developed a model recommending that the PEx team be staffed with approximately 70 dedicated PEx leaders, positioned throughout ABG’s operations and geographic locations. The model also called for an aggressive 2008 calendar-year goal of $40 million in net savings.

Myers targeted recruiting up to 15 full-time PEx leaders for the first wave. The direction for selecting these first team members came right from the top: Pick your best and brightest because that is the only way the deployment will be successful.

The first wave of PEx leaders trained the third week of July 2007. It included the deployment leader and 13 dedicated PEx leaders, recruited from each of the five geographic regions of the United States, along with employees from several of the largest corporate (shared services) departments.

The wave included vice presidents, directors, and senior managers, all of whom were high-potential candidates. To demonstrate his personal commitment to PEx, Salerno called each PEx leader as they were being recruited to help sell the program and its importance to the company’s long-term success.

After the first wave was trained, they shadowed the consultants for several projects—a form of on-the-job training. When they felt ready, PEx leaders began working on their own projects with other wave-one leaders as their wingmen until they were ready to head out on their own.

The first project was run at the Cincinnati airport and focused on reducing the time it takes for “shuttlers” (car drivers) to get their assignments, locate the appropriate rental vehicles, and exit the parking lot. Improving this process has saved the Cincinnati operations more than $100,000.

In October 2007, the team launched the second wave with 15 candidates, including five PEx leaders from Canada, to begin ABG’s international deployment. The following March, the PEx teams in Australia and New Zealand completed training; in April 2008, new recruits were trained for Budget Truck Rental. Currently, ABG has PEx projects running in every major location worldwide, across all operating divisions.

In time, the PEx recruits learned and applied their new skills, and the company gradually decreased the level of resources provided by their consulting firm to become internally responsible for the long-term success of the PEx program.

Replicating success

Avis Budget’s plans were to run original projects, and then replicate and implement the best of these across operations to help standardize processes. However, the PEx team soon realized that by stationing dedicated “replication” PEx leaders at the biggest airport locations, the team could expedite cost savings even more.

In January 2008, Myers refocused recruiting efforts to bring in two waves of PEx leaders selected from the biggest airport locations. Their goal was to focus on replicating solutions nationwide and ensure that gains from prior projects would be sustained by verifying onsite that process changes remain in effect.

By shifting to dedicated replication resources, ABG was able to implement its first project—shuttler assignment—throughout the United States and Canada in only two months, saving more than $3.3 million.

Replication teams are now concentrating on other projects that have been successfully implemented at an initial location. As a result, PEx savings have grown exponentially.

PEx program results

Since putting the first PEx leaders on the ground in early August 2007, ABG’s PEx program has come a long way. The company now has 68 PEx employees, all sourced internally. As of August 2008, the team has undertaken 84 original projects and 536 replication projects, resulting in savings of more than $42 million. The company is well on its way to achieving $50 million in savings, $10 million more than the original goal.

The biggest project to date has been the effort to eliminate unnecessary marketing collateral—tent cards, hang tags, and so forth—from rental fleet vehicles. This one project will save ABG more than $4 million per year, directly in support of its strategic goal, while also having the “green” outcome of reducing paper consumption by 100 tons annually.

The future of PEx

Avis Budget Group’s goal is to maintain about 70 PEx leaders to allow the team to coalesce and achieve a steady state. In time, Myers plans on losing some of these leaders to promotion, which will help infuse process improvement skills and the PEx mindset directly back into the organization’s culture. After two to three years, the company anticipates that most PEx leaders will naturally rotate back into other areas, although a small percentage will stay on permanently to grow into Master Black Belts and carry on the training and mentoring for the rest of the PEx team.

Most important, as savings from ABG’s PEx initiative approaches and exceeds $100 million per year, the company expects that continuous process improvement, using tools such as lean and Six Sigma, will become standard operating procedure. In this way, ABG’s worldwide operations will be better positioned to address the challenges faced by the company within the ever-changing global business environment.

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