The encyclopedia · Strategy & Leadership · Strategic decision · 2001–2003
McGriff Treading sold fleets shared savings to align tire-reduction incentives
Tire retreading only pays if fleet and retreader cooperate; McGriff's shared-savings contract with chosen parameters aligned both sides' incentives.
McGriff Treading Company
The solution
Tire costs run about three percent of a transport fleet's operating costs, and extending tire life with retreads is the main lever. But a wear-reduction program pays only if the fleet operator and the retreader cooperate — and the typical contract gives them conflicting incentives.
McGriff Treading, a US retreader, adopted service contracts with shared savings: a fixed fee plus a share of measured tire-cost reductions. McGriff analyzed combinations of fixed fee and savings share to choose parameters that kept the client actively involved.
Managerial performance metrics and information systems to monitor and track costs were the other key pieces. McGriff transitioned from selling a product to selling a service and successfully used the contracts with its intermodal and trucking clients.
Why it worked
- Per-tire pricing rewarded the retreader for wear, not reduction
- Sharing measured savings made both parties profit from longer tire life
- Optimized parameters kept client involvement high
- Monitoring and metrics made the savings real enough to split
What can be applied
When value depends on the customer's behavior, price the outcome, not the activity: shared-savings with chosen parameters turns the customer into a partner, not an adversary.
Aftermath
The shared-savings model became McGriff's commercial format for intermodal and trucking clients, and the case is used to teach incentive design in service contracting.
Sources
- McGriff Treading Company Implements Service Contracts with Shared Savings
- McGriff Treading Company Implements Service Contracts with Shared Savings (abstract)
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