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Since joining Hertz<\/strong>\u00a0as chief executive officer, in 2006, Mark Frissora has helped negotiate a major merger, implemented new technologies that will change the company\u2019s business model, and, most recently, announced plans to move Hertz\u2019s headquarters from New Jersey to Florida. Hertz, whose fleet consisted of just 12 Model T Fords when the company began in 1918, is now the largest publicly traded rental-car operator in the United States. In an interview with McKinsey\u2019s Rik Kirkland, Frissora discusses the enduring importance of understanding what\u2019s happening on any company\u2019s front line, how the car-rental business is continuing to evolve, and why organizations ignore technology at their peril.<\/p>\n McKinsey:<\/strong>\u00a0Hertz has nearly 41,000 employees and more than 10,000 locations worldwide. How do you balance the need to think strategically with the challenges of running such a logistically complex business?<\/p>\n Mark Frissora:<\/strong>\u00a0I often hear people say, \u201cAs a CEO, you can\u2019t get too involved in the day-to-day operations of your business. That\u2019s micromanaging.\u201d My response is, \u201cI have to get \u2018too involved\u2019 in the business because I\u2019m setting the strategy. If I don\u2019t understand the business, then I\u2019m a poor manager and I\u2019ve failed as a leader.\u201d It\u2019s critical that leaders spend a lot of time where the work actually gets done\u2014that they get into the guts of the business and see what happens there. The further down the chain you go, the easier it is to see how your strategy might not work the way you\u2019d intended. You might even discover that the strategy itself is backwards. You always walk away with a new insight or a new opportunity.<\/p>\n McKinsey:<\/strong>\u00a0How do you ensure that you spend enough time on the front line?<\/p>\n Mark Frissora:<\/strong>\u00a0I\u2019m on the road about 60 percent of the time. I always try to stop in at the Hertz counter in the airport. And about three times a year, I take my whole team to visit our call center. We have lunch with about 25 call-center supervisors, and then we spend an hour listening to different types of customer-service calls\u2014roadside assistance or reservations, for example. It\u2019s critical to plug yourself into the call centers.<\/p>\n McKinsey:<\/strong>\u00a0What about your leadership team? How do they stay in touch with the rest of the organization?<\/p>\n Mark Frissora:<\/strong>\u00a0Hertz\u2019s 19 most senior managers, myself included, do formal \u201cskip level\u201d reviews at least twice a quarter. I\u2019d done this at other organizations, and it works well. We sit with staff people on the front line\u2014their managers aren\u2019t there, and neither is anyone from HR. We ask, \u201cIf you were CEO for a day, what would you do? What\u2019s working right now, and what\u2019s not working? If you had a magic wand, what would you change about Hertz?\u201d The leaders in all of our functional areas do this\u2014IT, marketing, sales, operations, accounting. They all go to wherever the work \u201cgets done\u201d in their department. So the person who leads operations might sit with our mechanics or with the people who handle vehicle returns. The CFO goes to Oklahoma City, where several hundred staff members manage our accounts receivable. We ask, \u201cWhat\u2019s working? What\u2019s not working?\u201d It\u2019s a great way to see first-hand what\u2019s happening in your organization.<\/p>\n McKinsey:<\/strong>\u00a0When the skip-level review uncovers a problem, what do you do?<\/p>\n Mark Frissora:<\/strong>\u00a0It\u2019s important that I listen and help facilitate change, but I can\u2019t own the problem and I can\u2019t create the solution. That\u2019s up to each department\u2019s management team. So after the skip level, I sit with the management team and ask them to come up with a plan, in writing. The written plan goes to me, and it goes to the frontline team as well. Once a quarter, the senior-leadership team gathers off-site and we compare notes about what we learned from our individual skip reviews. We talk about what\u2019s actually happening at the operating level and what we need to fix.<\/p>\n McKinsey:<\/strong>\u00a0As you suggest, getting operations right is part of the success equation. What about the competitive environment?<\/p>\n Mark Frissora:<\/strong>\u00a0In 34 years, I\u2019ve never seen a more volatile business environment than the one we are operating in today. Technology and social media have completely changed the concept of competitive advantage. For a long time, companies could test and experiment; they could pilot a new concept or product, but they could keep it confidential. Now, whatever you do and say is almost instantly transferable to your competitors. Pricing strategies, marketing strategies, anything you pilot, even in a small market, immediately gets into your competitors\u2019 hands on a global basis. Unless you can patent something, the first-mover advantage\u2014at least the way we learned about it in business school\u2014lasts a very short period of time. What used to be a two-year competitive advantage is two minutes today. This is all due to the exponentially increased use of the Internet, social media, and other technology-based advances.<\/p>\n McKinsey:<\/strong>\u00a0Much of the information that is available to your competitors is also available to your customers. How has that changed the way you operate?<\/p>\n Mark Frissora:<\/strong>\u00a0Technology is making pricing much more transparent. Online intermediaries are all selling car rentals. Essentially, all they do is use a piece of software that makes it convenient for the consumer to shop and compare, but we generate a lot of revenue through these types of travel intermediaries. And they\u2019re getting better and better at comparing what different car-rental companies offer. There was a time when companies like Hertz could rely on their reputations and their price point to generate bookings. Now we\u2019re in a much more competitive environment and we have to deliver differentiation. We have to market our true value-adds, and then we have to deliver what customers are willing to pay for. There\u2019s no more smoke and mirrors. Again, that\u2019s because of technology.<\/p>\n McKinsey:<\/strong>\u00a0How have these technologies changed your industry as a whole?<\/p>\n Mark Frissora:<\/strong>\u00a0Technology is constantly challenging traditional business models, and it happens faster and faster in ways that can be difficult to see. When a new technology emerges, companies need to decide almost immediately whether to adopt it\u2014or they could risk being destroyed by it. Zipcar is a great example. It\u2019s essentially a car-rental company, but enhanced by a new technology. You go online, you find a Zipcar near you, you reserve it, it unlocks remotely, you get in and drive away.<\/p>\n This new way of renting cars would have been easy to ignore; Zipcar was a small player, and only in big cities. But we knew the technology itself\u2014and related developments such as software apps like Uber\u2014would be transformational, and we knew these ideas could move up the value chain and really disrupt business models. So we embraced them, because it\u2019s better to use a new technology to transform your own business than to watch your competitors beat you to it.<\/p>\n So now we\u2019re integrating that disruptive technology into our infrastructure and creating a new business model. Our new mantra is \u201csmart mobility,\u201d which combines technology-enabled flexibility with our push to set the standard for sustainability. I want anyone to access any of our cars by the hour, by the day, anywhere they want it. For example, right now we have Hertz 24\/7. But we don\u2019t look at that as just an experiment in car sharing; we look at it as transforming the entire rental industry. So in less than two years, we will have car-sharing technology in 500,000 of our vehicles globally.<\/p>\n McKinsey:<\/strong>\u00a0What are you doing to build the executive muscle you need to manage and stay ahead of these big technology shifts?<\/p>\n Mark Frissora:<\/strong>\u00a0One way is that my CIO is not some second-tier executive delegated to the CFO; he\u2019s a member of my executive committee and one of the key direct reports I spend a lot of time with. I\u2019ve also recruited board members from technology companies like Terradata and Facebook to ensure we have deep expertise in things like social media and extracting knowledge from data. To drive innovation, I have a senior vice president for branding and innovation on my leadership team, and I hired three bright twentysomethings in marketing and three in IT and put this cross-functional team under him to redesign all our customer interfaces and make them relevant to a new generation of renters. The broader goal is to continually track and refresh and expand what is technology-enabled in the organization.<\/p>\n