Driving Excellence

The bus company I run in Rochester, New York, was once as beleaguered as any organization in America. When I was appointed CEO of the Rochester Genesee Regional Transportation Authority (RGRTA) in 2004, I received a nice opening day surprise—a massive $27.7 million budget deficit. Previous management had seen the crisis coming but hadn’t taken steps necessary to avert it. Now, with a total budget of around $70 million, we were cooked. During my first weeks in the corner office, colleagues were advising me that we would survive only if we took not one but all of the following drastic steps: raising fares 40 percent across the board, reducing service by 65 percent, doubling fares on the disabled population we served, and axing about a quarter of our workforce.

We didn’t do any of these things. Rather, we focused on transforming our business from the bottom up so that we could execute better. In two years’ time, we turned that $27.7 million deficit into a $19.7 million surplus, a $47.2 million swing. Since then, it’s only gotten better. For four years in a row, we’ve actually made money—more than $29.7 million and counting—while also growing our organization (our annual budget is now around $85 million). Since 2004, the number of people we carry has increased by more than 20 percent, a rate nearly 50 percent higher than the national average. Our routes today pick up more people for each mile we drive than they used to—over 50 percent more. Our buses are cleaner, and customer satisfaction, which had never before even been measured, is on the rise.

Oh, and try this on for size: In 2008, at a time of recession, when airlines were charging customers to bring luggage on board, FedEx was raising its delivery prices, and many public transit systems were pushing through not one but two fare increases, we actually lowered our fare—to just $1, a price not seen since 1991.

Government has underperformed for so long that people doubt any agency can achieve breakthrough success. Cynics talk about how inefficient government is as if that’s a foregone conclusion. They are wrong. Government isn’t inefficient. Things that are big are inefficient. Are you going to call Citibank efficient? Or General Motors? Big organizations create bureaucracy. They suck energy and stifle creativity.

This book shares the fundamental principles of the RGRTA’s success in hopes of changing how organizations of all kinds operate. Forget the cynics; it is possible to take the rotten, dysfunctional, spendthrift organizations we’ve got and make them better. With careful and sustained effort, public agencies like hospitals, subway systems, schools, and police forces can execute efficiently and productively. The private sector, too, can eliminate the corruption buried in firms like Enron and Adelphia. With some good old-fashioned elbow grease, accountability and integrity on the part of management, and by applying the managerial principles outlined in this book, underperforming companies can remake themselves, just as we did.

Before 2004, we weren’t much of a bus company. Like many public agencies, we had no far-reaching vision, just the pervasive notion that “this place pretty much runs itself,” as the former CFO liked to say. What that meant was that finance ran everything in a reactive way. Unable to change with the times, and with no systems in place to even tell management what was changing, the company saw business stagnate year after year. Management’s primary directive was to get service out on the streets at all costs, and so we had dirty buses puttering about behind schedule with one or two people bouncing around in back. An egotistical, paternalistic leadership—again, not that different from what exists at many agencies and other underperforming organizations—handed out goodies at its whim, and consequences for bad performance at any level of the organization were unheard of. Many managers operated on the assumption that they would get larger budgets next year, no matter how well they did. Predictably, they didn’t do too well. Company morale was awful. Not knowing when to celebrate, the organization lacked vitality and energy. People talked about “getting their time in,” as if they were in prison.

Step by wrenching step, we’ve transformed ourselves into a disciplined, dynamic, data-driven organization that is now the envy of our peers. Drawing inspiration from the private sector, we’ve dispensed with the “this place runs itself” philosophy and evaluate every corner of our business, reengineering entire processes and employing new technologies to get things done better, more efficiently, and with a reduced reliance on taxpayer subsidies. To assess our progress, we measure what matters using state-of-the-art tools that have raised eyebrows in the private sector. We seek transparency with regard to all constituents—our board, our employees, our customers, and the public. Internally, a culture of rigorous debate reigns, and when we succeed, we celebrate like crazy. As a result, our people not only want to work here; most of them put in their best effort each and every day.

Our organization is not perfect. We are neither geniuses nor saints. Every day, we check our egos and assumptions about how to do things at the door and focus with all our might on building a state-of-the-art, performance-based organization. If you manage a company, a public agency, or a not-for-profit, take heart—there’s so much you can do, starting today, to help your organization excel. If you’re a taxpayer, a consumer, or a shareholder, I urge you to demand performance-based management in the organizations that take your money. If my own chronically dysfunctional organization can remake itself, on the brink of a total meltdown no less, then any number of institutions across America can, too. Taxpayers and the public at large deserve efficient government, while consumers deserve businesses that operate with a public servant’s eye toward stewardship. We all deserve organizations that work again—organizations that drive excellence.

REDISCOVERING LEADERSHIP

The chapters ahead offer many lessons from our turnaround experience, but at the outset I’d like to highlight two fundamental macro-themes. The first is the importance of inspired and determined leadership. No matter what challenge we face, we can’t fix organizations without people and their tremendous will to set aside the status quo, take risks, and do things differently. We need this determination not just on the part of a chief executive and the senior management team, but on the part of a broad number of individuals who are either selfishly motivated to save their jobs or organizationally motivated to operate more productively.

Walk into our executive suite today, or stroll through the mammoth garages where grease-covered mechanics take apart and rebuild entire buses, and you’ll find the same thing: professionals who are not only dedicated to the organization’s success, but who will speak up and fight for positive change when they believe it necessary. You wouldn’t have found this kind of engagement several years ago. It’s something we grew into. And as the CEO, I’ll tell you right now, it’s something I grew into.

Before I was appointed to lead the RGRTA, I had worked a variety of jobs: aide to a member of Congress, town administrator, staff member at RGRTA, and most recently, coordinator of a large public construction project. I had never run my own organization, and I had zero formal business training. Most of what I knew about leadership came from the commonsense wisdom my parents taught me on the small farm in upstate New York State, about an hour outside of Albany, where I grew up. You can imagine how daunting the fiscal crisis seemed to me during those early weeks. It was a defining test. Would my political know-how and down-on-the-farm wisdom be enough to guide this organization through? More importantly, would a newbie like me (I was only thirty-seven) be able to convince skeptical old-timers and entrenched interest groups to embrace the dramatic short-term changes we needed just to survive, let alone flourish?

Management had spent freely in recent years, and at the time that might have seemed like a safe thing to do. Unfortunately, those massive increases in expenditures were built on the rosiest economic conditions in history. When our revenue streams plummeted more than 40 percent to more historic norms, we found financial disaster on our doorstep. To make things worse, the price of diesel fuel, a relatively flat expense for years, was now skyrocketing.

I spent my first two months on the job working with our team trying to figure out what in the heck to do to prevent the roof from caving in. It looked like we wouldn’t survive the year without a massive government bailout. We knew we needed to slash expenses, but I wanted to do it intelligently, saving us, if at all possible, from having to make heartbreaking layoffs and raising fares. After many late nights, considerable hand wringing, and not a little heartburn, we came up with a creative plan that called upon the whole organization to come together and reshape itself. We would adopt none of the traditional solutions. We would say no to fare hikes. No to slashing service. And no to massive layoffs. Instead, we would reorganize how we delivered service to the community so that we would operate more efficiently. We would do away with unproductive routes and work to increase the number of people we picked up, all in an effort to lower costs and increase income. As part of this plan, we would cut some sacred cows such as lucrative overtime pay; if everything went well, though, we wouldn’t have to lay off any of our 750 employees, and we’d keep fares stable. Times would be tough, but there was a silver lining: With this plan in place, we would be positioning ourselves to ease our reliance on government handouts and become a better, more sustainable, performance-based organization over the long term.

We thought our plan would succeed, but we didn’t know if we had enough time, and we didn’t know if rank-and-file employees would cooperate. We were going to be asking a lot more of our drivers. Their buses were about to become much fuller; no more racing to the end of a route so they could read a newspaper or take a nap. After multiple meetings at which I made it clear we were facing a financial crisis, we announced elements of the plan. The response wasn’t great. Previous management hadn’t said anything about a fiscal crisis, and to the rank and file it looked like the new guy—me—had already screwed things up. We weren’t proposing layoffs, but the union leadership still decided they hated me. I received vicious unsigned letters attacking and even threatening me. I was accused of everything from embezzlement, to having granted no-show jobs to political friends, to, my personal favorite, having had a hot tub installed on top of the administration building for my personal use. And on and on they howled.

OUR OWN LITTLE CAESAR

Tensions crested during a meeting when I announced details of our turnaround plan. We convened in a massive garage where we store about a quarter of our 410-bus fleet. Halogen lights hung from ceilings thirty feet high, and massive overhead doors opened on either end of the eight-lane, 150-yard-long concrete floor. At one end of the garage, we’d created a square using four of our red, white, and blue buses. Dozens of our employees sat in the middle of this square on folding chairs. Behind them, dozens more angry mechanics, bus operators, and other union workers stood with arms folded across their chests; they felt that if they stood in the back, they would be on equal footing with me, since I was standing at the other end of the space. These union workers were scary and thuggish, with tattoos, surly attitudes, foul mouths, and serious muscles. And they were livid. Why, all of a sudden, was this hotshot suit coming in to take away their perks?

The most threatening and angry union employee of them all was a 350-pound bus driver named Caesar McFadden. I’ll always remember him. He probably stood six feet five inches and wore gold earrings and a heavy assortment of gold chains. Oh, and he wore a placard around his neck that read, in big block letters, “LIAR.” I assumed he wasn’t talking about himself.

I began the meeting by summarizing our situation. The organization was drowning and we needed to save ourselves. We were on the verge of not being able to meet payroll. If we didn’t pull together, shift the bus schedules around, and provide our service in a far more efficient fashion, we’d soon need to take other, less palatable measures. I reminded our people that we didn’t run buses in an effort to employ drivers. That was the old way of doing things. We ran buses because there were people to pick up. We ran buses to serve customers.

Union employees did everything they could to interrupt me. Grumbling, hissing, and expletives came from the back of the area. The same response greeted our twenty-five-year veteran vice president of scheduling, Chuck Switzer, when he tried to explain the new system we had built to figure out which routes were productive and which weren’t. Things were getting ugly. The real fireworks started when I opened the meeting to questions. Caesar McFadden, standing in the back with his big “LIAR” sign, stuck up his hand. He looked me straight in the eye. “Are you telling me you’re going to be laying a bunch of our people off because of this crazy thing you’ve come up with?”

I swallowed hard. “No. What I’m saying is—”

“So you’re saying you’re not gonna be laying any of us off,” McFadden interrupted, sticking his chest out. Those around him hooted him on as he was challenging the boss.

I started up again. “What I was attempting to say is that—”

“You people don’t give a damn about us!” McFadden shouted, pointing at me. “You don’t know what we go through every day. You don’t care about our bills. Our families.” McFadden was really starting to whip it up now, playing to the crowd.

Every fiber of my being told me not to yield. When he paused to take a breath, I said, “You’ve asked a question. I would hope that you’re actually interested in an answer. Now, what I was attempting to say—”

McFadden interrupted me again, but this time I wouldn’t stand for it. “You asked a question,” I said, raising my voice in anger. “I’m going to answer it. You will not interrupt me a fourth time!” There was no way I was going to let him take over our meeting and confuse employees with non-issues.

His chest deflated and his shoulders sank. He realized he had gone as far as he could. He and Frank Falzone, the union’s business agent, stormed out, taking all the union employees with them. I laughed to myself at that point. The meeting had gone on for about an hour and it was basically finished. Yet I knew I couldn’t let the meeting end because the bulk of the union employees had engaged in some silly walkout, as though that would somehow change the dire situation in which we all found ourselves. So I just made up stuff for ten minutes more so it would at least seem as though their departure hadn’t brought an end to the meeting.

This episode was pivotal for me as a leader; it was then that I realized just what kind of unflinching stubbornness it would take to bring change in the face of groups and individuals with a perceived interest in resisting it. As we’ll see later on, this wasn’t a one-off strength I would have to show, nor would it be limited to times of crisis. I would need to muster a single-minded, day-in, day-out commitment to serving the organization’s best interests no matter what.

Driving excellence is hard. Your most committed employees will question if you’ve gone too far. Pressure groups will attack you through the media, demanding that things be done their way, the public interest be damned. Every organization has its Caesar McFaddens; in fact, every organization has many of them. Yet the forces of change must stand their ground and face down the loudmouths. Whatever else leadership is, it isn’t a popularity contest. People in any position of responsibility must be prepared to make decisions every day that jeopardize their own personal interests so as to achieve the right outcome for their organization. Just as important, leaders need to encourage dissenting viewpoints, presenting the bad news as transparently as the good. Such integrity not only establishes the credibility you need to push through the tough decisions; it also inspires employees throughout an organization to work a little harder and expect others to do so as well—what we at the bus company call “demanding excellence.”

DRIVING A NEW HYBRID

Superior leadership is vital to remaking a dysfunctional organization, yet it is only part of the general picture this book will present. As time passed and the RGRTA moved from handling its immediate crisis to remaking every corner of its operations, we realized that we were evolving a new, hybrid model for managing that was unlike anything we had seen in either the public or private sectors—indeed, that melded the best in each. Our commitment to this model has been critical to our continuing success, and I’m describing it here in hopes that it can help public agencies and private companies alike remake themselves and exceed taxpayers’ and shareholders’ wildest expectations.

Most people don’t talk about it, but there’s a disease in government today. It’s called incrementalism. Society changes and so do markets, but public-sector management contents itself with doing the same thing year after year, making only minor changes around the edges. Managers at schools, hospitals, water districts, and the like regard what they provide as an intangible and essential “service,” the success or failure of which can’t be measured. Since these organizations often operate with a monopolistic attitude, managers think nothing of providing service that very few people would actually choose to buy on the open market. They provide schools with decrepit buildings, hospitals with indifferent staff, airports with archaic technology, and in our industry, buses that are dirty and late. If you enjoy a captive audience, why excel as an organization? Why improve? “Take it or leave it” is management’s unspoken attitude. It was our attitude for years.

That’s not all. When determining their budgets, the main question most public managers ask is not “How can we innovate to make our existing dollars go further?” Rather it is “How much more money do we need next year to do the things we’re doing now?” And the usual answer: “Four percent on top.” That is, management will content itself with maintaining the status quo and providing the same mediocre service, yet they’ll feel perfectly comfortable asking legislatures, and as a result the taxpayer, for 4 percent more each year to cover rising expenses due to inflation and market fluctuations.

We’ve succeeded because we’ve managed to throw “incrementalism” out the window and do the unthinkable: remake ourselves as a private company. Private companies have outperformed government agencies not because they possess superior leadership, but because market pressures force firms to innovate and improve their processes. Public organizations don’t force those same pressures on themselves. Since we wanted to optimize our execution, we resolved to take the best of what private companies do and adapt it to our business. This entailed a total change in how we viewed our operations and the language we used every day to describe them. We came to regard the people we served not as “passengers,” as they had been called and treated for decades, but as customers. Likewise, our buses weren’t merely vehicles for the transport of chattel; they were movable stores, and our drivers were greeters—like at Wal-Mart—with the mission of saying hello to customers at the front door, treating them well, and providing them with a superior experience, so that they would come back.

From this new way of thinking, a number of other steps followed. Like any business, we’d make decisions based on what customers were telling us, and on what our first-call employees perceived the customers wanted, not based on what political pressure groups said. In order to serve our customers, we’d watch our money very carefully; we’d need to know exactly how much it cost to make a wheel turn. We’d also take the lead from best-in-class private companies and develop clear, relevant ways to measure what we were doing and how we were performing.

Politicians talk all the time about running government like a private company. We don’t just slap that on a bumper sticker. We actually do it. Yet privatizing our business wasn’t the whole answer. As we’ve suggested, private sector managers are usually motivated to improve because of market demand. We were partially public servants, and as such we were motivated to improve not because the customer was clamoring and threatening to go elsewhere, but out of a sense of stewardship—because we thought it was important for the customer to have the very best product and value.

At the beginning of our turnaround, we spent a year examining our business and struggling with a basic question: Was our core responsibility to our customers, or was our core responsibility to the taxpayers who paid for part of our budget? Following the model of a private company, did we have an obligation to provide superior bus service to the community, or did we as a public agency have an obligation to maximize return to the taxpayer? The answer, we discovered, was . . . yes!

Like Starbucks or Best Buy, we had a responsibility to provide superior service if we wanted to get rich, but in the public interest we also had a responsibility to return as much value as possible to taxpayers. Serving both masters meant we needed to focus on efficiency—doing more good for our customers with the least amount of money from the public coffers. It sounds obvious, but nobody else was doing it. Focusing on efficiency led us to develop a nationally innovative service delivery model and corresponding measurement system to boost our productivity.

Think for a moment how powerful this balanced, two-pronged approach to management is. When almost any organization, public, private, or not-for-profit, cuts their service, their customer base falls off, and their remaining customers are less satisfied. When we, in our moment of crisis, made huge service changes, we reduced the total number of buses on the road by almost 12 percent. But since we focused on working smarter, with both a microscope and a scalpel, we actually wound up increasing both our customer base and customer satisfaction.

In 2004, every day we were picking up about 4,000 students who attended school in the city of Rochester, and we were losing sixty cents on the dollar for the privilege. Today, we pick up more than 11,500 students a day attending middle and high schools and fully cover our costs in a public-public partnership that is a model for other cities across the nation. More students are getting to class, school attendance is up, and the taxpayer is saving millions a year. Now, that is driving excellence.

We can summarize the management approach conveyed in this book by saying that we borrow the best practices from private sector companies and then, in an effort to make them even better, fuse them with a dedication to public stewardship. It’s a more balanced approach applicable to organizations of all kinds. Many government agencies fail today because they serve neither taxpayers nor customers, but themselves. Yet many private firms also underperform because they show only a narrow-minded loyalty to shareholders. Many private sector managers would do far better if they took more seriously their broader corporate responsibility. It’s not in a company’s long-term interest to operate a grocery store at a 10 percent profit margin in a market with three competitors, while in a community with only a single grocery store chain, the company operates at a 30 percent margin. Yes, a firm in the latter situation clearly can and should charge more; it has a responsibility to make money. Yet to reap benefits like heightened customer loyalty and the intangibles that follow, private firms should “balance” community responsibility with shareholder return. And that can be built into a sustainable business model—with formulas—and ultimately measured. When the single grocery store chain faces competition, as it likely will, it will already find itself well positioned to sustain its customer base.

DRIVING EXCELLENCE