Hal Rosenbluth, CEO of one of America's most successful travel agencies, says it's smart business to put employees -- not customers -- first

It was the close of a hard day's interviewing, and to wind things up, we asked Hal F. Rosenbluth, president and chief executive officer of explosively growing Rosenbluth Travel Inc., what really set his company apart from the thousands of other travel agencies in the United States. We already knew it was big -- 2,350 employees in 340 offices spread over 41 states, the District of Columbia, London, and Singapore. We already knew it counted dozens of blue-chip giants such as Du Pont among its customers. But Rosenbluth Travel had grown very large very quickly, and indeed seemed to be stealing market share virtually as we spoke. (This year alone it has opened 43 new offices.) So what was the secret? Was it the company's proprietary technology, as yet unduplicated by the competition? The continual introduction of new products and services, which won Rosenbluth a Tom Peters award as Service Company of the Year? The industrial-style quality-assurance systems?

Hal Rosenbluth -- curly-haired, round-faced, a youthful 38 -- turned his earnest brown eyes on us. "It's the happiness," he said. "Our people are happier."

We had been hearing a lot of such language that day, and frankly it seemed a bit much. Not just Rosenbluth's repeated use of words like happy and nice; not even that everyday terms such as employee and manager are banned from the Rosenbluth Travel lexicon (the company has associates and leaders instead). No, it was the whole touchy-feely, power-of-positive-thinking culture at this far-flung enterprise. The Live the Spirit hoopla. The Up Interviewing and the Happiness Barometer group and the High Teas. The fact that Rosenbluth would send crayons to his employees -- sorry, associates -- and ask them to draw a picture of the company. A hokier organization we never saw.

And yet a scant 15 years ago Rosenbluth Travel was a sleepy, four-generation family business employing a few dozen people. How many scions can walk into such a company, as Hal Rosenbluth did, and in a short time transform it into one of the biggest businesses of its kind in America? Indeed, how many entrepreneurs find growth of any sort in so cutthroat an industry as the selling of airplane tickets and hotel rooms? The man who adopted the salmon as his company's mascot -- because the salmon's a contrarian, swimming against the current -- was evidently doing something right as well as something different; maybe there was a connection between the saccharine style and the hard-driving performance. One day of interviewing might be complete, but there were obviously a few more questions to ask.

So back we went, tape recorders in hand, to Rosenbluth's spectacular headquarters at the top of a Philadelphia skyscraper. There, 51 stories above the city, the young CEO talked with writers John Case and Elizabeth Conlin about happiness as a method of management.

INC.: You say you want your associates to be happy; in fact, you use that word more than any CEO we've ever heard. Why?

ROSENBLUTH: You want the real reason? Our time on earth is finite. The majority of everyone's waking hours are spent at work. A company has an obligation to the people it employs to make that part of life pleasant and happy.

INC.: You answer like a philosopher, not like a company owner.

ROSENBLUTH: There's no contradiction. In the travel business, gross margins are 3% or 4% tops, often less. So you have to keep costs in line if you're going to make any money. If I see an office that for one reason or another is unhappy, its expenses will be increasing.

INC.: Why?

ROSENBLUTH: Errors. Time lost to office politics or to worrying. And there's a lot of stress in this business -- it's like being an air-traffic controller, one call after another. If you remove the stress, you cut turnover.

INC.: How does your turnover compare with others in the travel industry?

ROSENBLUTH: Ours is about 6%. For the industry as a whole, I've heard numbers as high as 45% to 50%.

INC.: That must make your replacement hiring easier.

ROSENBLUTH: Last year we had 21,000 job applicants. Taking both growth and turnover into account, we hired 800.

INC.: We want to come back to the issue of removing stress -- how you can remove stress on the employee and still provide high-quality service to the customer. But start at the beginning of this Crusade for Happiness. How do you choose people? How do you train them?

ROSENBLUTH: For key positions -- vice-president, say -- I interview people in some unusual ways. I throw a baseball around with them. I go for a drive in a car and watch how they get around in traffic. I play basketball with them.

INC.: Basketball?

ROSENBLUTH: I like to see who's passing the ball, who's hogging it, who's taking shots they shouldn't. I had a candidate for a sales executive position and his spouse go on vacation with my wife and me. On the third day of a vacation, things start to come out.

INC.: Wouldn't it be hard not to hire him after spending a vacation together?

ROSENBLUTH: Absolutely not.

INC.: What about lower-level jobs? You can't play basketball with 800 people.

ROSENBLUTH: It begins with the ad. One of our ads might say something like, "We're not just offering you a job, we're offering you a lifestyle." That will trigger something in a certain type of individual. Then we'll go through telephone interviews and personal interviews, maybe three or four hours in all. No matter which office is doing the hiring, all candidates are screened by someone in our human resources department.

INC.: You told us yesterday that you look above all for nice people. Doesn't everyone?

ROSENBLUTH: Everyone does, though I think we may be a little better at identifying them than others are. But the big difference is what happens after they're hired. Not many people join a company with a bad attitude -- companies instill bad attitudes in people. Think of the gleam you see in people's eyes on the first day of work. If you can keep that throughout their careers, your company is having a positive effect on their lives.

INC.: It sounds as if you think most companies instill these bad attitudes early on. What do they do that makes you say that?

ROSENBLUTH: Just look at the first day of work. In most companies, the first day usually involves filling out forms. Forms! You're excited, you want to come into the company, meet new people, see new things; you've got these great dreams of what you want to do, and all of a sudden you're slapped with 25 forms? The first two days are the most important days of someone's career -- all your impressions begin then. Why have somebody sit there and fill out forms?

INC.: Say the two of us took jobs at Rosenbluth. What would happen to us on the first day of work?

ROSENBLUTH: First, there's a two-day orientation. Much of it is role-playing, skits. I can't think of any other company where on the first day you would do skits. Granted, no one's comfortable doing this -- you have to be a professional actor to be comfortable doing a skit -- but everyone's in it together. People are laughing, people are having fun.

INC.: What are the skits about?

ROSENBLUTH: We might ask you to take the last negative service experience you had and act it out in a group of four or five. Most people can come up with a bad service experience very quickly.

INC.: Presumably that gives your instructors a way of talking about what constitutes good service.

ROSENBLUTH: Precisely. It breaks down people's preconceived notions. Over the next two days we take those bad experiences and turn them around, show people how they could have been good or great experiences.

INC.: For example?

ROSENBLUTH: Somebody is riding on a bus, and a passenger throws a hot-dog wrapper on the floor. The bus driver turns around and screams at the person. Turning it around means showing how the driver could have handled it differently -- say, by waiting until the next stop, putting the bus in park, walking to the back, and picking up the wrapper. The driver might say, "I like driving a clean bus, and I want to have a clean bus for my passengers," then just smile and sit down. The point is, there are options other than yelling at the person or saying something under your breath or just driving the bus faster.

INC.: You yourself get involved in the orientations, don't you?

ROSENBLUTH: On the second day of orientation, some of the other officers and I serve high tea to everyone who's joined the company that week. We talk -- about the values that are important to us, about what's made the company successful, even about things that have nothing to do with travel. It's a way of saying, Hey, we're real excited. You've joined the company, and you're going to help make it a better company. We do this almost every week.

INC.: Every week! We know CEOs who barely have the time to meet new hires, let alone spend a couple of hours chatting with them.

ROSENBLUTH: This is the critical point, the point when we talk about everything we believe in. Besides, it helps eliminate a phenomenon that plagues a lot of companies -- the generation gap. New associates have new needs, new expectations, and the company needs to change in response to these needs. Every Tuesday I learn a lot about the needs and desires of people joining the company.

INC.: How do the new employees react to all this hoopla?

ROSENBLUTH: A few people say, This company's too weird -- I'm gone. Others say, Wow, I'd like to make a career here. Then we go into training, two to eight weeks, depending on a person's level of experience. More people leave during the training -- or are asked to leave. If someone's saying, Look at me, look at me, look what a great job I'm doing, they're out of here. It's the Santa Claus theory of management. We watch to see who's naughty and who's nice.

INC.: So the 6% turnover figure doesn't apply to that initial stage?

ROSENBLUTH: Turnover is much higher during the training. If we're going to lose anyone, that's the best time. That's when they buy in or buy out.

INC.: Let's imagine people buy in, that they're excited and committed. Even so, a reservation agent's job can be highly stressful -- as you said, it's one call after another. How do you relieve boredom? How do you maintain people's enthusiasm, let alone happiness?

ROSENBLUTH: Where do I start? We have fun. Walk into one of our offices around the country, and you'll see people having Picnic Day or people dressed up in costumes for some other kind of day. If it's August, it'll be Associate Appreciation Month, with a different treat every day. Or take our Associate of the Day program: every associate is invited to schedule a day with me, taking part in whatever I have to do that day. That's been so successful that all our vice-presidents now have the same program. If you're interested in marketing, industry relations, whatever, just pick up the phone and ask to spend a day with that VP.

Then there's what we call our Live the Spirit program. Every month a group of volunteers we call service leaders come to Philadelphia for training on a specific subject -- nutrition, wellness, financial planning, whatever -- then return to their offices and give a Live the Spirit seminar. And every 18 months all the associates are invited to a Live the Spirit weekend.

We'll have seminars, shows, a dinner -- even a trade-show booth for career paths with Rosenbluth. People can chart where they'd like to be with the company in the future.

INC.: Career paths. That's the first time you've mentioned bread, as opposed to circuses. A skeptic would argue that all the rest is just frills.

ROSENBLUTH: I wouldn't agree with the skeptic. But if you want to look at tangible rewards, we instituted a pay-for-quality program not long ago, which is really a way to let associates determine their own salaries.

INC.: You better explain the connection -- and what you mean by determine their own salaries.

ROSENBLUTH: It's an incentive plan. They get a base salary, and then depending on the number of quality reservations they take -- I'll explain what I mean in a moment -- they begin to scale up their compensation. If you take 100 quality reservations, you're going to make more than if you take 80 quality reservations. After we began this program, average pay for reservation agents rose 32%, to the point where many of them were making more than their supervisors.

INC.: Ouch. Sounds like a good way for the company to go broke.

ROSENBLUTH: On the contrary, our costs dropped 4%. People were doing things right the first time, so we needed fewer people. And turnover declined because people were making more money. So hiring and training costs went down as well. It was all so obvious, which is bizarre. Sometimes the most obvious things take years to do.

INC.: OK, tell us what you mean by quality reservations. If a ticket gets the client where he wants to go at the lowest fare -- and if it's delivered on time -- hasn't the travel agent done a quality job?

ROSENBLUTH: There are a hundred different opportunities to make an error with every reservation. That's how complicated the industry has become. We requested an aisle seat for you when you wanted a window seat. We didn't order a special meal for you when we know you always get one. You're going to Chicago, but your car was rented in Topeka. Then there are questions like, Was the agent pleasant? Did she use your name? Did she offer the lowest airfare? Every one of these possibilities for error is checked.

INC.: Another source of stress, right? Checking all those items would give anyone a case of nerves.

ROSENBLUTH: That's where technology comes in. One thing we've done, for example, is develop software to reduce by 75% the number of keystrokes required for each reservation. That lessens stress on the associate and cuts down on the possibility for error. We've also developed a proprietary quality-assurance system to check every single reservation in real time. If the agent makes an error, it will come back immediately, and the ticket will never hit the customer. We can check 2,000 reservations an hour using the system. But more than that, if errors begin to occur, we can do statistical process control to find out where they're coming from.

INC.: Which you can then use to correct the problem.

ROSENBLUTH: Right. In some cases the problem lies with the client. For instance, a corporation might want all its travelers to use only one form of payment, say, one particular credit card. And the employees might not be doing that. That will show up as an error.

Anyway, quality reservations are only one aspect of our company these days.

INC.: What else are travel agents expected to do now that they didn't do before?

ROSENBLUTH: Essentially, we want to teach our corporate clients that T&E is a manageable expense. The travel industry has erected barriers over the years to keep information from clients -- for example, how much they pay per mile. We'll share that information; in fact, clients can get right into our mainframe and pull it out. It's theirs. Or we'll provide them with detailed reports on their travel, by department, by cost center, by anything, and then we'll help them lower the cost. For example, we might negotiate a special rate with an airline between two points at certain times of day. We can analyze which of our clients can take advantage of that, and let them know about it.

INC.: Surely any big travel agency can do that.

ROSENBLUTH: Maybe they could do some of it. Most travel agencies get their back-room systems given to them by an airline or leased at a reduced price. We didn't do that, because we didn't want to be indebted to a particular airline. And most aren't linked electronically to their clients. The technology lets us spot fare trends faster and get the information to our clients faster. If one trend enables you to save $100 a ticket -- and if a client has 100 people flying that route -- that's an awful lot of money saved.

INC.: We won't argue. Rosenbluth Travel already has quite a reputation for putting the client first -- you've been recognized as Service Company of the Year by Tom Peters. But there's a puzzle here. You've apparently built your company around proprietary technology and high-value-added service to customers -- yet we've spent most of our time talking about employees.

ROSENBLUTH: Frankly, we don't believe our customers can come first unless our associates come first. If we have happy people here, then they're free to concentrate only on our clients.

INC.: The magic word again. Forgive our skepticism, but no one is happy all the time, least of all in a company with 2,350 people. How do you know when something's beginning to go awry?

ROSENBLUTH: Six months ago I sent white construction paper and a pack of crayons to 100 associates and asked them to draw a picture of what the company meant to them. I got back 54. About 5 of them weren't too pleasing -- one in particular.

INC.: Can you tell us the story?

ROSENBLUTH: Someone drew us a nice picture of a family in their living room. It was the holiday season, with the fire glowing and a Christmas tree with ornaments, and children playing with jacks. That was marked "before." On the next page was the same scene in pencil. Now the fire was out; the person was shivering, the jacks were gone.

When I got it, I picked up the phone and called the person and said, "Can we discuss this?" It turned out that a function was being moved from one office to another, and a couple of people thought they were going to lose their positions. In fact, they were going to be retrained to do something else, but we hadn't communicated that. So the person went from feeling warm, cozy, I love the company, to Hey, I'm scared. The picture was a good way for me to elicit feelings that weren't going to come out in a survey.

INC.: Do you test how people are feeling by any more systematic methods?

ROSENBLUTH: We do use surveys extensively -- in fact, we just instituted a 401(k) contribution program in response to what we learned from a survey. And I meet regularly with a group I call my Happiness Barometer group. It's 18 associates chosen at random from different offices. Also we do what I call Up Interviewing, even though somebody told me that sounds stupid.

INC.: Up Interviewing?

ROSENBLUTH: We have quality-assurance teams that travel around the country visiting our offices. They'll go to reservations agents and ask them to review with us the performance of their leaders, then go to those people and ask them to review the performance of their leaders, and so on. Incidentally, this is done by people who are not themselves in leadership positions.

INC.: In some companies that would be perceived as Big Brother snooping around. It would strike fear in people, not happiness.

ROSENBLUTH: It seems to me that people want to be observed doing great things. If you were a student in a class and felt confident of what you were doing, you'd want the teacher to call on you.

INC.: And if you didn't feel confident?

ROSENBLUTH: Then we want to help you. This whole thing started several years ago with me. I asked a bunch of people who reported to me to tell me how I could do a better job. It kind of grew from that.

INC.: How do you know they were being honest? You're the boss, after all.

ROSENBLUTH: I'd say that most of them couched their remarks. But then, as the years went by, they didn't bother to couch everything. They let me have it between the eyes. I became a better leader because of that, and was able to focus on things I hadn't focused on but should have.

INC.: Back to that notion of putting your people first. Surely in case of a conflict between the customer and an associate, the customer has to come first.

ROSENBLUTH: Not necessarily. If an associate has a bad attitude, is constantly in a bad mood, then maybe he doesn't belong here. But there have been rare instances where we've had to say to a client, We'd like to help you make the transition to another agency. Usually these are companies that mistreat their own people, so they mistreat ours over the phone. I think it's terrible to ask one of our associates to talk with someone who's rude to them every 15 minutes.

INC.: You run a company that prides itself on being employee centered. Yet you have no employee stock ownership -- not even a formal profit-sharing plan.

ROSENBLUTH: Employee stock ownership hasn't seemed appropriate yet; maybe it will someday. And there's an understanding that if the company does well, the associates will do well, too.

INC.: What about going public? Do you think about that?

ROSENBLUTH: I've thought about it a number of times and dismissed it very quickly. Quite a few people have said to us, Boy, you ought to take this company public. But it would go against our culture. We do a lot of things that don't necessarily make sense if you're a publicly owned company, and I think we're successful because of those things. We make a lot of long-term decisions, such as the investments we've made in technology. And we spend our money in unusual ways. A stockholder might say, Why are you bringing 2,000 people to Philadelphia for a weekend? Things like that.

But it's our attitude toward people that makes us successful. We're looking to hire people when others get rid of people. We look at human resources the way others look at financial assets. In the travel business the profit margins are low, and there are no patents on our product. All our growth is client driven, and all our success hinges on people.

INC.: Which is why they'd better be happy.

ROSENBLUTH: Which is why they'd better be happy.