A Modern Approach

Aug. 1, 1999
To understand what it is like to rent construction equipment in Philadelphia, one of Modern Group's primary markets, consider the story of how the city's

To understand what it is like to rent construction equipment in Philadelphia, one of Modern Group's primary markets, consider the story of how the city's football fans once treated an appearance by Santa Claus.

Legend has it that a man dressed as jolly old Saint Nick was booed off the field during halftime of a Christmastime game by unruly Philadelphia Eagle fans, a group that more than likely included a few Modern Group customers. If the natives in the so-called City of Brotherly Love are that tough on Kris Kringle, one can only imagine how demanding they are of their local rental company.

And it is not just the customers who have a reputation for toughness. Competition in Modern Group's market, which includes Pennsylvania, New Jersey, Delaware, Maryland and part of New York, has intensified as market-share-driven consolidators look to boost revenue via acquisition. Last year alone, 106 Northeast rental outlets were acquired, according to RER's Consolidation Report.

The bottom line is that serving the Northeast equipment rental market is no gimme these days - not even for a large, well-run independent such as Modern Group.

Yet each of Modern Group's three divisions that rent equipment - Modern Equipment Sales & Rental and industrial forklift rental specialists Modern Handling Equipment of Pennsylvania and Modern Handling Equipment of New Jersey - is thriving. (For more on all five Modern Group subsidiaries, see Capsule, page 50.)

Combined, the three rental companies helped parent Modern Group jump 16 spots to No. 25 on this year's RER 100. Projections call for 1998's $31 million in rental revenue to be eclipsed by 10 percent to 12 percent this year. Total revenue for 1999 is expected to come in at nearly $150 million.

That success is a testament to the company's combination of high-tech innovations with a work force of motivated employee-owners - incentivized by an employee stock option plan - who rent and sell a full range of homeowner, contractor and industrial equipment.

Dave Griffith, president & CEO of the Bristol, Pa.-based company, compares Modern to a three-legged stool. "The legs of the stool are people, product and technology," he says. "One without the others just doesn't work. But if you get it right, you can do some interesting things."

Call it a Modern approach.

Modern technology Several years ago, as competition in the Northeast's rental markets began to pick up, Modern's management team began focusing on ways to differentiate the company from the crowded rental field.

The result was a re-engineered business model that not only recognized the then-embryonic electronic-commerce revolution, but put Modern at the forefront of it. Today, Modern's computer-literate work force includes laptop-toting sales and service personnel. And the portable hardware is not just for show.

Salespeople use journal, calendar, "tickler" and, most important, e-mail functions in their everyday routine.

If a sales manager needs to check an employee's schedule, for example, he can access it with a few clicks. Time elapsed: 45 seconds.

If a salesman wants to alert his top 30 customers to a weekly special, he fires off an e-mail. Time elapsed: 15 minutes.

If a manager can't figure out what is causing productivity to drag at his branch, he can call up last month's report and pinpoint a cause. Time elapsed: 60 minutes.

"Equipment rental is a lot more complicated business than many people realize," says Griffith. "If you have the data, you know exactly where you stand. If you know where you stand, you can figure out what you need to do to get where you want to go."

What is not complicated, however, is the software that Modern's employees use to figure out where they want to go. Most applications are the off-the-shelf variety commonly found in any software store.

While many companies have access to the same software, the difference is that Modern's people use it. A good example is the company's rental-rate worksheets, a spreadsheet program developed by salespeople in the field that allows them to know immediately how much the deal they're working on will add to the company's bottom line. (See story, page 43.)

"If people are trained to use the tools, they can do the job not only faster, but better," says Griffith, who was an executive with IBM and MCI before joining Modern in 1992. "Everyone has been trained to use the spreadsheet program and the word-processing program. And the rental-rate worksheet shows that sometimes we get benefits we didn't expect from insisting on companywide training."

With a technophile such as Griffith running Modern, it should come as no surprise that the company is on the vanguard of equipment rental e-commerce. Modern recently hired its first employee via electronic job posting and employment application on its 4-year-old Web site (www.moderngroup.com), which is now in its fourth incarnation. Every piece of used equipment for sale is listed on the Web site and updated every 48 hours. Courses that the company's training department offers customers are also posted on the site.

It sounds simple, but Griffith contends that those steps are the building blocks of true electronic commerce. "We're constantly evaluating what we do on the Web," he says. "We want the Web site to provide information, but we always want a human being following up on everything.

"The technology is great, but we're dealing with units that are renting or selling for several thousand dollars," Griffith says. "How do you put on the Internet, 'Let's discuss freight charges?' How do you say, 'Let's discuss the application?' What if the customer would save a day's work by renting a specific attachment but doesn't realize it?"

While the thought of encrypted secure Internet transactions thoroughly thrills Griffith - a self-proclaimed "data freak"- he knows that technology alone provides only a small competitive advantage for Modern.

"All of this technology is here to augment and better the transaction," he says. "But this is still a hands-on business; human interaction is the key."

Modern people Modern Group, the parent of 14-location Modern Equipment Sales & Rental, has nearly 600 people on its payroll. Nevertheless, Griffith refers to his particular style of management as "running a family business with 580 members of the family."

Under such a system, employees are given the authority to make decisions and execute business strategies with minimal interference from upper management. "We don't have to go through six layers of bureaucracy to get things done," says Paul Hollowell, rental manager of Modern Handling Equipment of Pennsylvania, one of Modern Group's two forklift specialty divisions. "The strength of who we are is that we have people with so much experience, you can bank on them making the right decision."

An example of such autonomy is Modern's training program. When the program was born, its sole purpose was internal training of employees. Employees who went through the program suggested that the company offer it to customers. External training classes are now a valuable Modern profit center.

Another example of employees' influencing Modern's direction is its recent acquisition of an Austrian line of loading equipment for automated warehouses. The suggestion to carry the high-end equipment came froman employee in Modern's material-handling division. Two years later, the company filled an order for several million dollars of the automated racks and cranes, Griffith says.

Such autonomy not only serves customers well, but also helps retain employees. An empowered employee is usually a happy one, or so the saying goes. Even in today's cutthroat environment for experienced rental center personnel, Griffith says Modern's turnover rate is low compared to that of others in the industry. There are some limits on employee empowerment, though. Each location has its own balance sheet, and if a rental branch continually misses its target, Modern's management jumps in to reverse the trend.

Motivated by the fact that Modern's bottom line is, at least partly, their own, employees often ask management for assistance before problems have a chance to develop, Griffith says. At the start of 1999, employees owned about 34 percent of the company. (See story, below.)

"People here understand that when the company does well, they do well," he says. "That is one reason we have a low turnover rate"

Says Al Funk, president of sales for Modern Equipment Sales & Rental: "Because we have such a low turnover rate, our customers are continually talking to the same people every day, every month, every year. Our salespeople, our branch managers, our service people have been here a long time. That lets customers know that a deal they make today is good tomorrow as well."

Modern service The Modern management team is devoted to ensuring that employees buy in to the company's customer-driven culture.

The goal, Griffith says, is to have employees with direct customer contact - such as service technicians, receptionists, truck drivers and counter personnel - attempt to solve customers' problems as if they were their own.

"That's not to say we don't occasionally drop the ball," Griffith says. "On one order recently, we shipped the wrong equipment to a customer's jobsite." When the customer received a $2,000 bill at the end of the month, he called to complain.

The solution was simple. The customer was asked to put a dollar figure on how much use he got out of the lift. When the customer said he got about $500 worth out of the equipment, he was immediately credited $1,500.

"You always have to look at the value of a customer over a lifetime, not just a single transaction," says Dave Wiggins, president of Modern Handling Equipment of Pennsylvania, one of Modern Group's forklift specialty companies. "A very small number of customers provide a large part of our business. Getting that message down to counter personnel and technicians can sometimes be a challenge."

Wiggins is a big believer in customer-response cards, which are sent to all customers who rent lift trucks from Modern Handling Equipment of Pennsylvania. "Anyone who fills out a card with a less-than-average rating, I personally call," he says. "It is a great experience. I always thank the customer for giving us a bad mark, and customers often don't know how to react. I tell them, 'We need to know if one of our customers is unhappy so that, the next time you call, we get it right.' Thankfully, I don't get many of those cards with below-average ratings on them, but I do appreciate the ones I do get."

The idea is to create a relationship with customers that can withstand the heavy competition and rate-slashing that have hit some of its markets of late, Griffith says.

"If competitors want to beat us on price, they can," he says matter-of-factly. "But if that company's equipment breaks down at 1 a.m., who's going to be there? If one of our employees gets a call in the middle of the night, he doesn't need to ask anyone for permission. He gets in the truck and he takes care of the customer."

Every branch has fully equipped service trucks designed to handle on-site service calls 24 hours a day, seven days a week.

Modern Group also insists that its sales force engages in proactive selling. At the beginning of each year, salespeople visit construction and industrial sites to discuss how it can provide for their equipment needs throughout the year.

Such meetings led Modern to discover that many industrial customers - especially those running round-the-clock plants - were concerned about the potential for lapses in electrical service because of the year 2000 computer problem.

"Customers told us that a lot of our competitors were absolutely gouging them on generators," Griffith says. "We decided to take a bit of a different approach. While we insisted on minimum rental periods for generators in the December 1999-January 2000 period, our rates remained the same. That is a good example of how we're different from some of our competitors."

Another way, he says, is with its inventory. Griffith, who is fond of saying that "all rental is local," believes in catering to specific markets within the company's trade area. Therefore, the mix of inventory at each of Modern Equipment Sales & Rental's 14 locations varies depending on local customer needs.

When Modern Equipment Sales & Rental purchased an equipment and party rental company several years ago, it not only continued to rent chairs and tents from the newly acquired location, but also began offering a limited supply of party goods at each of its branches.

"There was no reason to let that revenue die," Griffith says. "Now, someone could walk into any of our rental branches and order 15 tents. Our infrastructure allows us to fill that order from anywhere."

Modernizing Modern But Modern Equipment Sales & Rental's bread-and-butter is contractor and industrial equipment. To better serve those customers, Modern Group last year merged its light equipment rental company and its high-reach rental company.

Modern Equipment Rentals and Modern HiLift Equipment were combined in order to eliminate overlap and take advantage of common customers, service areas and operating structures. Previously, the light equipment company (founded in 1974) and the aerial business (formed in 1983) had been run as sister companies. That separation allowed Modern HiLift to focus on aerial customers' special needs, with Modern Equipment Rental handling general equipment.

But in 1998, a formal separation of the two was deemed no longer necessary. In fact, Modern Group determined that the separate companies were not only inefficient from a financial standpoint, but confusing to customers, according to Bob Inverso, one of two operations managers for the year-old combined company.

"Under the old arrangement, a customer would call Modern Equipment Rentals and say, 'I need to rent a mixer, an air compressor and a backhoe. Oh, and I also need an all-terrain forklift,'" Inverso says. "We would have to say, 'You can get the first three here, but here's another number for you to call for the forklift.' Now we say, 'No problem. When do you need them?'"

Adding to the potential for confusion was the invoice situation. Customers who rented a generator from Modern Equipment Rentals, a boomlift from Modern HiLift and a forklift from one of the Modern Handling Equipment companies would wind up with three different invoices at the end of the month, each with the word "Modern" at the top.

"The merger benefits the customer in terms of simplicity of dealing with Modern," says Larry Gower, operations manager. "We realized we had a lot of crossover between the two companies."

So Modern Equipment Rentals' 10 branches and Modern HiLift's four locations came under the Modern Equipment Sales & Rental banner. Because they serve an extremely specialized industrial niche, the forklift companies remain separate. (See story, left.)

"We're in the equipment rental business," explains Larry Norton, president of operations for the combined rental company. "Whether it is a backhoe or an aerial lift, it is still a piece of equipment. Now, customers can get pretty much anything they want from any of our locations."

The staff at parent Modern Group handle purchasing, marketing, human resources, information systems and financial management, allowing the rental subsidiary's sales, rental and operations people to focus on servingthe customer at the local level. That arrangement provides it with some of the a gility of an independent in reacting to customer needs and a certain amount of leverage that comes from being part of a $150 million corporation.

"When you tie all of the Modern Group divisions and all of the Modern people together, you wind up with a very, very focused organization," says Griffith. "If there is one word that describes us, it is 'focused.'"

Serving demanding customers in the highly competitive Northeast marketplace requires that Modern Group maintain that focus. Otherwise, the area's legendary boo-birds would undoubtedly let Griffith hear about it.