Lecture 1 Case Studies

Maintaining a Customer Service Culture: The Case of Les Schwab Tires Figure 1.1Les Schwab Tires

Source: © Thinkstock

Les Schwab Tire Centers, Inc. (a privately held company) was founded in 1952 and has built a reputation of stellar customer service. This company oversees retail tire and brake shops that generate nearly $2 billion in annual revenue. They have more than 7,000 employees across more than 400 locations in eight states in the United States. It is well known for its service orientation and product guarantees. For example, they are known to fix flat tires for free and it is estimated that they give away more than $10 million in repairs each year. Customer stories of heroic Les Schwab Tire Centers service include a customer who went to one of their stores and had the tire chains installed for a ski trip, an hour before the store opened. Another customer reports being rescued by Jeremiah Cook, a Les Schwab employee, who changed her tire in the pouring rain on his day off. When asked why he did it, he replied, “That’s just the way we do things here. What if that was my mom on the side of the road?” So how is a tire company with thousands of employees in dispersed locations able to achieve such employee commitment and customer excitement? As Pollie Sengstake, General Manager for Human Resources for Les Schwab says, “We sell tires. Other stores sell tires. Our organizational culture is our secret sauce that makes us successful.” How do they create such a strong sense that providing excellent customer service is the right thing to do? Sengs take notes that to create and maintain their strong culture, Les Schwab starts right away with new employee onboarding that stresses the “Les Schwab way” of doing things. Then the culture is reinforced through regular performance feedback that stresses the importance of not just what employees do, but how they do it. All Les Schwab employees are expected to understand and behave consistently with the organizational culture and bonuses are tied to performance on this dimension. When thinking about Les Schwab Tire Centers, Inc., it makes sense to think of the organization as encompassing three separate eras. The founder, Les Schwab, had clear goals and values of treating employees like family that influenced how he ran his business while at the helm. The fact that he never sold the company is reflected in those goals. He referred to his successor as the closest thing to a son that he had, and things remained stable in the years to come. However, with the departure of both of these family men, a new era has begun. The early years of the company may be termed The Les Schwab era (1952-1983). Les Schwab’s personal life story is a big piece of the puzzle of how he approached his business. Les was orphaned at age 15. He supported himself and his brother by leaving school early each day to complete his work as a newspaper delivery boy. His a “rags-to-riches” success story and his cowboy-hat-wearing persona is legend. He built his company from the ground up after borrowing $11,000 from a relative. He was known for driving his 1962 jeep from shop to shop and living by modest means. He was also famous for his signature cowboy hat and giving away free steaks to anyone who purchased four tires during March of each year, when sales were typically slow. Schwab is best known for starting a policy of sharing 55% of the company’s profits with his employees through bonuses, health benefits, and retirement trusts. It was not uncommon for store managers to earn six-figure annual salaries and to retire as millionaires. Schwab seemed perplexed when other companies didn’t follow suit. “Why be greedy?” he asked. “If I can help make twenty young people become successful, doesn’t that make me 20 times more successful?” When he passed away in 2007, it was a huge blow to the organization that he had founded. The G. Phillip Wick era (1983-2008) was consistent in many ways with the Les Schwab era. Les Schwab Tire Centers historically had a strong orientation toward promoting from within. Wick rose through the ranks of the

company. In 1965 he began his tenure with the company and within three years he was promoted to manager of the store. At age 24, this made him the youngest manager in the company’s history. In 1983 he succeeded Les Schwab as the second president of the company and then became Chairman of the Board of Directors until 2008. Wick remained with the company on the Board of Directors until his death in 2010. Wick is quoted as saying, “Since I joined Les Schwab, it has been more than a way of life. Our employees and customers make this company a great place to work, and I am proud of our accomplishments.” The Dick Borgman era (2008-present) represents the first Les Schwab Tire Centers, Inc., CEO to be hired from outside of the company. Under his tenure, executives have been brought in from such diverse outside firms as Adidas, Starbucks, and General Mills. During the Les Schwab era, it was clear that promoting from within was the way things were done. "Les has always wanted to have employees who think of this as a partnership," said Borgman, while he was still vice president. "As a result, I think it's almost a competition among stores to see who gets the most compliment letters, who takes care of the customers the fastest." However, rather than being promoted from a store location, Borgman was trained as a lawyer and economist and hired as an executive. More recently, Borgman led the move out of Prineville, Oregon, where Les Schwab first began his business. It is clear to those who knew him that Les Schwab never would have supported such a move if he were alive today. The old headquarters was a simple, one-story building, and Les Schwab had estimated that staying in Prineville added an extra forty cents to each tire. However, he resisted relocating and abandoning the community that had supported him from his early years. The new headquarters is three stories high, sits on a twelve-acre site, and includes many modern amenities, such as solar panels and bike storage for employees. The architecture of the new upscale Bend, Oregon, headquarters was designed to resonate with and celebrate the company’s history. Each wing of the building is devoted to a different decade of the company’s history. In addition, etched glass in each conference room depicts actual Les Schwab Tire ads from bygone eras and a huge photo of Les Schwab greets visitors when they arrive at the front door. The question now is whether Les Schwab Tire Centers, Inc., can maintain its distinctive and focused customerservice culture. When organizations transition from a customer focus to a more administrative focus, challenges may surface. Time will tell whether Les Schwab’s legacy will be strengthened by making tough business decisions in tough economic times, or whether evolving away from the roots of Prineville and Schwab’s focus on internal employees as the key to success will lead Les Schwab Tire Centers, Inc., to becoming “just another tire company.” [1]

CASE DISCUSSION QUESTIONS 1. 2.

3. 4. 5.

Think about the three eras described above. How would you describe each of the eras? Please be prepared to support your answer with examples of each. Think of examples in your own life of when a firm has delivered excellent customer service. Are there examples in which you’d be moved to write a positive customer service letter? What do you think are the main reasons why Les Schwab Tire Centers, Inc., are so successful at garnering such positive customer feedback? Do you think Les Schwab Tire Centers, Inc., has a competitive advantage because of their corporate history? Why or why not? Do you think Les Schwab Tire Centers, Inc., will continue to be as successful as it has been if it falls on hard economic times? Why or why not? Which costs to do you think are associated with maintaining a strong organizational culture, such as that of Les Schwab Tire Centers, Inc.? What are the potential benefits?

Motivation Key for Success: The Case of Xerox

Anne Mulcahy, Former Xerox Chairman of the Board (left), and Ursula Burns, Xerox CEO (right) Source: Photo courtesy of Xerox Corporation.

Xerox Corporation is a large multinational corporation. Xerox has approximately $23 billion in annual sales, was founded in 1906, and operates in 180 countries. Xerox is headquartered in Norwalk, Connecticut, and employs over 140,000 people and has nearly 12,000 active patents. How does a company of such size and magnitude effectively manage and motivate employees from diverse backgrounds and experiences? Such companies depend on the productivity and performance of their employees. The journey over the last 100 years has witnessed many successes and failures. In 2000, Xerox was facing bankruptcy after years of mismanagement, piles of debt, and mounting questions about its accounting practices. Anne Mulcahy turned Xerox around. Mulcahy joined Xerox as an employee in 1976 and moved up the corporate ladder, holding several management positions until she became CEO in 2001. In 2005, Mulcahy was named by Fortune magazine as the second most powerful woman in business. Based on a lifetime of experience with Xerox, she knew that the company had powerful employees who were not motivated when she took over. Mulcahy believed that among other key business changes, motivating employees at Xerox was a key way to pull the company back from the brink of failure. One of her guiding principles was a belief that in order to achieve customer satisfaction, employees must be interested and motivated in their work. Mulcahy not only successfully saw the company through this difficult time but also was able to create a stronger and more focused company. In 2009, Mulcahy became the chairman of Xerox’s board of directors and passed the torch to Ursula Burns, who became the new CEO of Xerox. Burns became not only the first African American female CEO to head a Standard & Poor’s (S&P) company but also the first woman to succeed another woman as the head of an S&P 100 company. Burns is also a lifetime Xerox employee who has been with the company for over 30 years. She began as a graduate intern and was hired full time after graduation. Because of her tenure with Xerox, she has close relationships with many of the employees, which provides a level of comfort and teamwork. She describes Xerox as a nice family. She maintains that Mulcahy created a strong and successful business but encouraged individuals to speak their mind, to not worry about hurting one another’s feelings, and to be more critical. Burns explains that she learned early on in her career, from her mentors at Xerox, the importance of managing individuals in different ways and not intentionally intimidating people but rather relating to them and their individual perspectives. As CEO, she made it clear she wanted to encourage people to get things done, take risks, and not be afraid of those risks. She motivates her teams by letting them know what her intentions and priorities are. The correlation between a manager’s leadership style and the productivity and motivation of employees is apparent at Xerox, where employees feel a sense of importance and a part of the process necessary to maintain a successful and profitable business which handles $421 billion in accounts payable annually. In 2010, Anne Mulcahy retired from her position on the board of directors to pursue new projects. Ursula Burns is now Chairman and CEO of Xerox. [1]

CASE DISCUSSION QUESTIONS 1. 2. 3. 4.

How do you think Xerox was able to motivate its employees through the crisis it faced in 2000? How does a CEO with such a large number of employees communicate priorities to a worldwide workforce? How might Ursula Burns encourage employees to take calculated risks? Both Anne Mulcahy and Ursula Burns were lifetime employees of Xerox. How does an organization attract and keep individuals for such a long period of time?