Just under two year ago, car rental company Hertz was facing huge financial woes and then CEO John Tague said that it was left with “no choice” but to overhaul its tech. Fast-forward to today, and new CEO Kathryn Marinello has just appointed a new CIO, Opal Perry, who is coming over from auto insurance quote company Allstate, the company is nearing the completion of its end-to-end tech overhaul, and has bear analyst expectations in its latest Q2 earnings.
Whilst Hertz reported a $63 million loss, this wasn’t as bad as expected, and its $2.39 billion second quarter revenues beat projected earnings.
CEO Marinello took time with investors on the company’s earnings call to remind the market that the losses and the time taken to invest in the company’s future is deliberate, and that turning a company around isn’t a quick fix. She said:
Since the beginning of 2017, we’ve been working on a four-tiered plan to ensure that the foundation of our business is strong, resilient, and adaptable to support growth and innovation, and successfully navigate any economic cycle. Our plan encompasses initiatives to enhance product, service, brands and technology.
At the same time, we’re bolstering our leadership team and investing in employee skills and capabilities. It’s a lot of work across the organization, but success in these areas is fundamental to creating recurring revenue and productivity improvements. We know that the most sustainable path to creating value is to continually invest in our capabilities.
A successful turnaround is not the result of quick-fixes or short-term cost-cutting. It’s a deliberate process to drive sustainable improvement across all key metrics.
Marinello added that Hertz is aware that the significant investments that its making in operations and technology are putting a lot of pressure on earnings. But she added that if the company doesn’t get this right, “deficiencies in any one area can derail long-term growth”. She added:
However, early performance trends are encouraging and we’re cautiously optimistic about the pace of progress throughout the rest of 2018.
She said that spending will remain elevated through 2019 as Hertz continues its improvement programme and updates its 30-year old technology platform.
Hertz said that the investments it made last year to fix its fleet are now paying off and that it is beginning to benefit from better processes and strategies in fleet management, to keep depreciation expense in a more reasonable range. Part of this involved introducing a more intuitive revenue management system and an “AI-powered” constant management platform that combines fleet and demand forecasting into one system.
Commenting on the company’s technology investments, Marinello said:
While benefits are coming from fleet marketing and field operations, heavy IT spending continues. As is always the case, but especially when it comes to technology, the benefits lag the investments. For those of you who are new to the story, we’re in the midst of a major end-to-end technology upgrade that included outsourcing our legacy systems and designing and building a cloud-based infrastructure for our five core platforms: digital, CRM fleet management and fleet accounting, reservation, and rental.
Marinello has held the interim CIO position in addition being CEO for the past three months, during which time she said she has been able to get a deep understanding of vendor performance, spending controls, data flow strategy, and the timeline and accountability for each initiative. However, Opal Perry will now lead IT strategy, development and operations, as well as the prioritisation and delivery of Hertz’s cloud-based systems upgrade. Marinello said:
Most recently from Allstate, she brings more than 25 years of experience as a global leader, developing, integrating and capitalizing on end-to-end digital innovations and cloud-native applications and microservices. I feel very confident in handing over the reins to Opal when she comes on board later this month.
She added that pilot testing of the new systems will begin soon and that there is a planned launch of the new platforms in fall 2019. Marinello added:
We’re targeting the fall because we wanted to be through the summer peak before we launch the new technologies. To-date, our sales force and cloud CRM applications are substantially complete. The New Hertz digital app has been created and testing is well underway. Development of our redesigned reservation system is 90% realized and our fleet management and fleet accounting system build-out is about 60% done. The platform’s engine, the rental system is roughly 25% through its development.
So again, we’re making good progress. Our plan is for the fleet reservation and rental systems to be rolled out as one cohesive integrated global system next year.
It’s been a busy couple of years for Hertz, as noted above. But Marinello said that given 2018 is Hertz’s centennial anniversary, she would like to see it as “year one of our next 100 years”. As such, Hertz is designing and building its new technology platforms with the “future in mind”, she added. On future investments, Marinello said:
Incorporating the work that’s already underway to support connected, touchless and autonomous vehicles into our new systems, will mean better data analytics, more intuitive fleet management and incremental new revenue streams, all being driven by a faster, more agile architecture. These are the advantages that compel technology leaders and future mobility to partner with Hertz.
And, according to Marinello, Hertz’s future looks bright. She said:
We look to shape Hertz’s future as a more efficient, progressive, fleet management company that drives operational growth, leverages Hertz’s iconic brands, leads through technology and unlocks asset value. Those are our priorities. In 2019, the contributions from our 2017 and 2018 initiatives will further accelerate, which will have more of an offsetting benefit on the investments in technology and operations that will continue through the end of next year.
In 2020, with the systems’ rollout completed and the field operations leveraging the new technology tools, the turnaround investments fall away, revenue continues to grow and productivity steps up.
Image credit - Via Hertz