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When Erik Olsson became chief executive officer of RSC (RRR) in 2006, it felt more as if he were taking over a hundred small companies than one with a common corporate culture. The company, which rents construction equipment to the industrial, residential, and nonresidential segments, had long been growing like a tumbleweed, with new rental operations "rolled in," rather than integrated. A merger with Atlas Copco in the late '90s had exacerbated the situation.
"RSC didn't really have a business model, a culture, and certainly didn't have the financial performance that was required," Olsson recalls. He thought his first task would be to integrate the company's pieces but soon realized he faced an even more fundamental task. "I saw that you can't integrate something that's not working," says Olsson. "So we had to take two steps back and figure out how to run this operation efficiently and profitably."
Olsson, who joined RSC in 2001 as chief financial officer and was named chief operating officer in 2005, recently spoke with Bloomberg Businessweek Management Editor Patricia O'Connell about building a corporate culture from scratch, then navigating the recession. Edited excerpts of their conversation follow:
Did you have any trouble convincing the board that you needed to do something different from what you had originally planned early in your tenure?
The board didn't take much convincing because they could see the results were less than stellar. And I think the board realized that they had made a mistake not sending somebody else in there a lot sooner.
You say RSC didn't have a business model, but the company was functioning. What was it doing?
It was simply, "let's buy equipment, let's put it out to rent." There were no considerations given to capacity, utilization, capital efficiency, cost efficiency, measuring results, and driving performance. So if you had a lot of fleet in your yard, you just lowered your price until somebody would rent the equipment. That's not a way to run a company.
So I started to implement financial measurements, operating metrics, to make it visible to everyone how poorly they had performed and what the objective would be in terms of equipment utilization, pricing, returns.
Isn't it a little surprising that some of those things weren't already in place?
Very surprising. But to tell you a secret, you find that in many, many companies—in what you would consider the best of companies. You go in there and you see that my God, they have no idea what they're doing. They've achieved whatever position they have just by luck and chance.
Anyway, it seems obvious. It's not. So we started doing all those things and at the same time trying to create a culture in the company. The way to do that was really by relentless communication and training, showing and demonstrating to our people why we are doing what we're doing, why it's important, how the P&L and the balance sheet hang together, why it's important to look at these metrics.
So how far down in the company did this training go?
It was down to the storefront. It took almost two years and we did four different versions of this training, which we called Business Basics. I traveled around the country for almost two years doing classroom-style training.
Once we had a company that was cost- and capital-efficient and we had an employee base that understood how things should be run, we started to ask: "How should we now grow it?" Growing it by lowering prices is not the right way. We saw that customer service was really lacking in both our business and the industry as a whole, so we saw that as a great, great opportunity to carve out a niche for ourselves.
Can you give me some examples of how you became more customer-focused?
If we can provide a hassle-free experience to our customers, if we can provide equipment that is reliable and doesn't break down while it's on rent, if we can provide an exact delivery time—all that is a big deal for the customer.
So we invested in our maintenance systems. We said that we're going to be 100 percent current on manufacturer's recommended preventive maintenance. Again, it sounds obvious that you would take care of the assets that you have and you buy, but that isn't the case in the rental industry.
What was the cost of instituting this kind of maintenance program?
We're talking about tens of millions of dollars that we spent employing more mechanics, building our systems so that we can track each individual piece on its preventive maintenance program, and so on. We have roughly 4,000 delivery vehicles that we equipped with Qualcomm (QCOM) GPS technology so that we could run both an efficient pick-up and delivery process and thus be able to guarantee and track the delivery time. It was an initial investment, but we ended up being able to service our customers better, being able to charge a higher price as a result, and saving money on the back end. And when you commit to being more service-friendly, more customer-centric, you force yourself to be more efficient.
After we installed the GPS technology, for example, we were able to cut our delivery fleet by 25 percent, because we could track the entire fleet and make sure that our trucks always had full loads and never drive empty in one direction.
And customers saw that this is a different rental company. We can say: "Hey, you're going to save a lot of money if you do business with us because we can guarantee you no breakdowns, we can guarantee you on-time delivery, we'll show up whenever you need." That turns the discussion [with the customer] about value as opposed to price.
You pride yourself on the transparency of your management style. Can you give me some examples of how you think that helped you, especially during the recession?
I'm a firm believer in sharing as much information as possible with everybody in the company. The more information you have, the better decisions you can make, the more motivated you are because you understand why the company acts in a certain way. I've opened up our systems; I've opened up our information databases to basically all employees so that everybody can see exactly what's going on in the company.
For example, it used to be that each store looked at their own fleet that they had in the yard as their own to rent out, and they held onto it very dearly. And I said that's not the way we operate. The fleet is the company's fleet, and it will go to wherever it's needed. So we said if the store in the next town—or even the next region—needs the fleet that you have on your yard, you're going to send it to them.
And that was a revolution. It took probably a year or a year and a half for that cultural shift to set in. But now it's part of our DNA. The fleet is the company's fleet and you just give it up if somebody else needs it.
So you helped change the culture?
There really wasn't a culture. It was a hundred different cultures, because we were originally a hundred different companies.
So we've gone from no culture, if you like, or a hundred different cultures, to now a very strong culture of teamwork, collaboration, big picture, and always doing what's best for the company, which is about what's best for the customer.
How do you create one culture out of one hundred?
Over the years I probably have visited almost all of our locations. It's about frequent, preferably face-to-face communication and consistency.
Can you give me some specifics about how much the business grew?
So from 2004 to 2008 we had an average annual growth of 12 percent over those years, all organic, no [mergers and acquisitions]. We became a fast-growing company almost overnight as we started to focus on these things. Our profits grew the same way: We had industry-leading margins, industry-leading growth rates. So it was a very, very successful phase and a very fun, fun time as well.
The last two years have not been so great for anyone. Can you talk about how you managed through the recession, which they now tell us is over?
I do think it's over. So whether it was June last year or more recently, it seems like it's over. It was almost like we went over a cliff—in December 2008. The fleet came off [rental] at an unprecedented level. And 2009 was a terrible year.
The downturn was well sign-posted already in 2007. In early 2008, we started to really look at what excess baggage could we get rid off, either in terms of businesses or locations or what type of equipment we didn't want to carry with us into a slowdown. Obviously we didn't know how severe it would be. We didn't know about Lehman Brothers and all those things at the time.
We closed a number of locations; we started to reduce head count, etc. So once the recession hit with full force, we were already well into cost-cutting efforts or mitigating efforts.
But even after having taken those measures, you still say that it was like going off a cliff. How do you climb back up?
We had already rid ourselves of underperforming locations, so we started to right-size the employee base. We reduced head count by 1,400 employees, closed 70 locations, out of 475. But during the same period—2008 to 2009—we opened 55 new locations. So over those two years we had a net reduction of our store count of only 15. Our biggest competitor net-closed 125 locations, I think, and No. 3 has closed 60 or 70.
What happened to revenues during that period?
Revenues fell by about 30 percent in 2009.
How are revenues looking for 2010?
We should see positive year-over-year growth in the second half of 2010.
You've been quoted as saying "financial numbers are like dairy products, they only have the shelf life of a few days." How do you convince the market and your board of that? Everyone wants numbers.
Yeah they do, and the board is easy to convince because we produce numbers very fast and we send information to the board very fast. At the end of day two every month, I send a flash report to the board with the numbers from the prior month and a short summary of what's going on. That's basically the only time we talk about last month and then from there on, it's the new month.
Fresh milk, exactly. You can't run a company by looking in the rearview mirror. You have to look forward.