Halle might love the people who work for him at the corporate office in Scottsdale, but he has a strong belief that oversized corporate staffs can drain the life from an organization by taking too much control from the people in the stores. Worse, every dollar invested at headquarters is a dollar that can’t be spent on store expansion.
The company’s breakneck pace of store expansion in the 1980s began to expose some cracks in the system, however. Providing the greatest flexibility and independence at the store level can build esprit de corps, but it can also encourage duplication of easily consolidated expenditures, evolution of differing cultures and suboptimal financial performance.
As the 1990s began, CEO Tom Englert recalls, the company had no training department to ensure consistency across the country. Dave Fairbanks and Al Olsen had worked on the company’s first training manual in 1981, but not much had been done since then to assure consistency of training and culture.
The company had benefited in the prior decade as a large number of Michiganders moved out to open new regions, bringing the culture and training with them. As the company entered more regions, though, that pattern of migration had become less significant and reinforcement of culture was needed. Similarly, each region and store was reinventing the wheel when it came to advertising and marketing, with no central resource available to buttress the local capabilities.
Across the same period that included the loss of his first wife and his own brush with death, Halle began to acquiesce to expanded corporate functions, but only if they were focused on supporting the stores. He had made a move in that direction in 1986 when he appointed Bruce Halle Jr. to be senior vice president in charge of store operations. In 1990, he brought in Englert in a parallel role, with the mandate to help the regional vice presidents in helping the stores. In 1995, Halle named Bruce Jr. to the role of president and promoted Gary Van Brunt in 1997 to executive vice president—the same role Ted Von Voigtlander had held previously.
Professionally, the awards and recognition continued to grow for the company. In 1998, Forbes ranked Discount Tire 281 on its list of the five hundred largest private companies and bumped the company up to 229 in the following year. Industry magazines continued to list the company as the largest independent tire retailer. By the end of the 1990s, Bruce Halle would be atop a network of 416 stores, with 1999 revenue topping $1 billion for the first time.
Von Voigtlander, who had retired from active involvement in the company, died in 1999, but Halle was not allowed to attend the funeral. Although he had continued to provide financial support to his retired partner, Von Voigtlander’s widow was not enamored of Bruce Halle. Halle and the widow’s attorneys eventually reached agreement on a buyout value for Von Voigtlander’s remaining 29 percent of the company, and Halle borrowed the money to pay her off.
The situation still rankles many of the executives who were involved in the transaction, who see Halle’s approach as more conciliatory than the situation demanded. Halle concedes that it was a disappointment, but insists he has moved on since then.
Halle named Gary Van Brunt CEO in 1999, making Van Brunt only the second person in nearly forty years to hold that title. In 2000, Halle brought in Diane’s son, Michael Zuieback, as an assistant vice president to create a corporate strategy function. Keenly aware of the company’s emphasis on promotion from within and bringing executives up through the stores, Zuieback invested substantial time absorbing the culture, simply getting to know the store managers and regional leaders and figuring out what made the company tick.
Soon, he was ready to help the operations team codify and perpetuate the cultural strengths that would sustain the business. While he initiated classic initiatives like strategic planning, he also focused on translating what people already did into the language of a plan. In many ways, the corporate strategy focuses on the culture that creates success, rather than on the dollars that would result from implementation.
Training expanded to focus on the Dream Slide, a visual depiction of all the tools employees would need to utilize in building their careers at Discount Tire. Showing a car being driven toward a store, the slide incorporates messages about personal growth, customer service, financial metrics and teamwork.
While the Dream Slide is a single page of drawings and text, training sessions based on the document can last a day or longer. Running a tire store and building a career at Discount Tire are harder than they might appear on the surface, especially as managers focus on the need to pay forward to both employees and customers.
That focus is emphasized, as well, at the corporate office, where the stores are recognized as the customers who need to be delighted by the home office, just as the buying public must be delighted by the stores.
“When we came up with that Dream Slide, people asked, ‘Should we have a different slide for the corporate office?’” Lori Governale, vice president of administration, remembers. “I said, ‘No, because the company is all about the stores and the customers. When we grow the stores, we create opportunities at the corporate office.’”
Governale says the corporate mission to support the stores can limit the clarity of advancement opportunities for people who are not working in the field. In the stores, growth is applauded, but growing headcounts at corporate is discouraged whenever possible.
“Here, the career path is not as well defined as in the field, because we’re a cost center. We’re here to support the stores while keeping costs down. We help make it possible for the company to open more stores, and that creates career opportunity at corporate,” Governale says. To make sure employees in corporate see their role clearly, the company has begun sending administrative staff on store visits. “The sooner we get them out into the stores to see how things work, the faster they’ll understand the Dream Slide and how it relates to their work in the corporate office,” Governale says.
Refinements in training have helped the company solidify and focus on the core strengths that grew organically and were transmitted as managers were transferred to new regions in the 1980s. While the company continues to benefit from cross-regional transfers that increase the consistency of acculturation, a company that plans to operate one thousand stores or more needs to standardize its programs.
Halle has never been afraid to experiment with new ideas, but experiments have become more limited and infrequent as Discount Tire grew. The first diversification into general auto service at Dave Fairbanks’s Huron Valley Tire store failed, as did the membership-based Tires Plus Club and the diversion into battery sales.
Still willing to experiment, though not under the Discount Tire Name, Halle opened a pair of Network Alignment stores in 1992 in Arizona to provide alignment, brake and other services under a different corporate name. Again, the experiment failed and Halle sold the stores to their managers just three years later.
In 2002, Discount Tire tried a new approach to flat repairs by charging customers upfront and then giving them vouchers to use on a future tire purchase. The voucher program offered no “wow factor” to customers and seemed, in the customers’ minds, to be no different from the competitors who charged for repairs all along. Two years later, the company returned to free repairs with no vouchers.
Around the same time, Halle assigned son-in-law Chris Pedersen to create a mobile tire service for people who wanted tires installed at their homes or offices. Pedersen ran the service for a few years, but that business never gained traction, either.
In all these diversifications, the company found it impossible to replicate the success Halle had found in simply replacing tires. Discount Tire, it turns out, had developed a hedgehog concept in 1960, but required more than four decades to determine that they could not improve on the model. (A hedgehog concept, of course, is the idea posited by Jim Collins in Good to Great that the best companies find one thing they can do better than anyone and focus on that one thing.)
In the end, Halle’s hedgehog was not selling tires but motivating employees to provid
e better customer service than peers. In a commodity business, that has proven to be enough to drive the company from a single store to the top of its industry.
THE BUMBLEBEE
As Discount Tire gained traction as one of the nation’s largest independent tire retailers, skepticism about its business model faded into grudging respect and, ultimately, admiration. It didn’t take long before potential buyers, investment bankers and other investors started sniffing around, suggesting to Halle that he sell the company or go public. Several of his primary competitors took the bait, but Halle has been adamant in his refusal to engage in any discussions on the subject.
“We are approached and we won’t even talk about it, because if we talk about it, it will start rumors, and we’re not going to sell it,” Halle says. “These capital people, with all the money they have to spend, they want to buy everything, but you know what they do to companies. They rape and pillage. They really do. It’s terrible what they do, so it’s not on the agenda. I won’t even talk about that.”
Discount Tire would deliver a track record of performance that few companies could match. Over more than fifty years of operations, the tire retailer has never had a down year for sales and has never had a layoff. In 2010, Discount Tire recorded more than $3 billion in revenue and ended the year with 791 locations.
While that performance is rare for any company—even surviving fifty years in business is a major achievement—the company’s path to success has been rarer still. Discount Tire is a bumblebee, accomplishing what appears on the surface to be impossible. While common wisdom suggests that a bumblebee’s short wingspan and rotund torso should preclude flight, bees are not terribly susceptible to the wisdom of the crowd. Similarly, Discount Tire thrives while overpaying its people, keeping employees on the payroll in spite of screwing up, giving away too much product and staying closed when competitors are open for business.
Managers at the company’s eight hundred retail stores start with a base salary in the $55,000 to $70,000 range, but bonuses based on store earnings often build their income into six figures. Managers share 10 percent of annual store profits up to the $200,000 level, while their portion of earnings increases to 20 percent when store income surpasses $200,000. In 2010, more than 80 percent of stores posted earnings over the $200,000 level.
In addition to liberal application of the reset button to salvage the careers of faltering workers, the company will pay bonuses at times to employees who don’t meet their profitability goals, especially when the shortfall results from local economic conditions. Halle has approved bonuses in Michigan and other economically challenged areas as a means of keeping employees motivated in difficult markets.
Halle also provides a solid array of employee benefits and frequent gifts for employees as a way of saying thank-you for their commitment. In addition to tuition grants for college, trophies and prizes are awarded to employees’ children who are still in elementary school or high school as a means of encouraging their emphasis on education.
“We give a semiannual gift in June or July and another one in December,” Halle says. “That’s for everybody, and then we have a performance bonus, which does not include everybody, so there are three a year. Why not? Everybody doesn’t earn the incentive each year. But every family can always use a few more dollars for whatever they’re doing.”
Discount Tire’s success depends on having the right people on the team, and Halle is willing to make the investment to recruit and retain those people. In a very real sense, Halle pays a price for keeping his stores closed on Sundays, one of the busier days for any retail business, but he wouldn’t shortchange his employees on one of the few benefits he allowed himself when he opened his first store.
“He leaves a substantial amount of money on the table in terms of contributions to the 401(k) plan, gifts, bonuses, parties and such,” says Jim Silhasek, general counsel. “He could run this place on a really skinny budget and make a lot more profit available to himself personally, but that’s not the way he wants to do it.”
As a publicly traded company, Discount Tire would get no points for Halle’s willingness to approve low-ball budget goals for store managers, either.
“He believes in giving people budgets they can absolutely outperform, which is different from the ‘stretch goals’ that are more common,” CFO Christian Roe says. “He doesn’t want people to be disappointed at not reaching their numbers. So we end up with some incredibly positive morale. That’s been enormously successful in growing the company over the years.”
Halle says he learned the hard way that setting aggressive goals reduces the level of progress by demoralizing people whose markets won’t allow success. Setting the bar too high can actually lead to lower performance than setting the bar a bit lower, he says.
“It’s wonderful that financial people can sit down and, based on last year’s numbers in the market and so on, make some projections as to what we’re going to do. That’s their job. That’s all they do,” Halle says. “But they don’t make it happen. They’re not out there making these projections become true. They’ve just put them down. In fact, with Christian [Roe] and [Assistant Treasurer] Andrew [Haus], I’ll take their projections and I’ll cut them by 25 to 30 percent. I’ve done this. I’ve cut them heavily. Why? Because here’s what happens. Christian is optimistic and comes up with some great numbers. They’re all broken down by parts of the country, right down to stores. Sounds wonderful. You’re a store manager, and we come up with this overall projection, and it’s all broken down, and it’s fed from the bottom up to some degree, and we massage it, and we add to it or subtract. Now all of a sudden, you’re a store manager, and this whole big, grand thing is done, and we have a projection, and your projection is X. In the past, our guys had it too high. So, month by month, you can see what you’re doing. You’re not making X. You’re depressed. You’re feeling like a failure. You’re wondering what’s wrong with you and so on and so forth, because X was too high. So my point being to Christian and all my guys, we’re going to cut these projections way down. Now, X is X minus something, and all of a sudden, you’re meeting it or maybe you’re exceeding it. You’re happy. You’re elated. You’re positive. You’re pumped up. ‘Hey man, I’m successful! I’m doing it.’ And you get way above the projection. You feel wonderful. You’re a star. You’ve made money.
“The opposite is a disaster. If you project too high for people, they’re a failure all year round. Even though these are projections, by the time they get around the region, to the assistant vice president and to the stores, they’re not projections, they’re marching orders. That’s how they read them.”
Halle remembers making the mistake of delivering overly optimistic projections to the stores and watching performance suffer as reality kept the managers from achieving the goals.
“You could sit down and take any store, and come up with a number and say we’re going to sell four more tires every day at every store,” Halle says. “So, you could take a store and take what they’ve done in the past, add four tires a day, run the numbers out, and see how much more money they’re going to make. It was a mistake on my part because it was an unreasonable goal. You could not do it. So, you’re a store manager. You looked at these numbers all the way out. The numbers are truthful. You can’t reach them, but they’re truthful. There’s nobody lying. You see this number and you say, ‘I’m going to make this much money. I’m going to get 20 percent of that.’ So you go home that night. ‘Honey, guess what. I’ve got these numbers and I’m going to get 20 percent of that.’ Your wife says, ‘I’m going to get new drapes, a new sofa,’ whatever. And everybody is excited, but you don’t get there. You can’t get there. It’s a disaster. I let that happen one year and there were disappointed people all over the country, so we won’t make those mistakes again.”
Another mistake Halle won’t make is overloading his store managers with mandates from the corporate office in Scottsdale. Contrary to general business practice
and theory, Discount Tire is built around its employees and the individual store. Stores are treated as independent operating businesses, each with a mission to delight the customer.
Corporate meddling can get in the way of success at the store level and, by transference, the entire company. At corporate headquarters, six executives are responsible for overseeing twenty-three regions. In the regional offices, a total of roughly one hundred vice presidents and assistant vice presidents oversee eight hundred stores. The job of management is to hire the right people, immerse them in the corporate culture and get out of the way.
“The guys and gals in the stores run the company,” explains Gary LaHaie, senior vice president of purchasing. “It starts all the way down at the neighborhood level in the stores, and then it moves up to the regions, and then corporate. One neighborhood might not be able to afford the same tires as another, and it’s up to us to meet the needs of each store.”
While the corporate purchasing team works regularly to obtain volume pricing or other breaks from manufacturers, the corporate office won’t tell its store managers which tires to push. The company will arrange promotions, but there is no mandate for any store to participate.
“What do we know about what they sell in Lubbock, Texas, or what they should be selling in Lubbock, Texas?” LaHaie asks. “We don’t, so we have no business telling them what they should sell. We’re not the customer. The people in the stores are serving the customers and driving our company forward, so we need to listen to them.”
Halle likens his reliance on individual store managers to the approach Warren Buffett applies in businesses owned by Berkshire Hathaway. It’s no more complicated, in his mind, than having the right people working with a profitable business model.
“Warren Buffet has interests in a whole bunch of companies all around the world. He has an interest in them or controls them, or he owns them, whichever. And what Warren does is he’ll put someone in charge of XYZ Company and, as long as that guy is running that satisfactorily, that’s good,” Halle says. “And he knows he can’t run all of these companies. He can’t do all of that. He’s got some people doing that. And when I look at my position, I think back to somebody like Warren, and I say, ‘I’m doing the same thing.’ I’ve got all these people running this organization, and as long as they are all doing their jobs and the results are good, I’m happy. That’s what they’re supposed to do. Now when that changes, I have to make changes, which is what he does.”
6 Tires, No Plan : The Impossible Journey of the Most Inspirational Leader That (Almost) Nobody Knows (9781608322589) Page 17