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Volume 19, Number 22 Copyright 2002 Business Book Review, LLC All Rights Reserved

CustomerCulture
How FedEx and Other Great Companies
Put the Customer First Every Day
Michael D. Basch
2002 Prentice Hall PTR
Adapted by permission of Financial Times Prentice Hall Books
an imprint of Pearson Education
ISBN: 0-13-035331-0

Reviewed by Lydia Morris Brown

Introduction
According to Basch, creator of FedExs legendary sales and service organization, culture is a system that drives an
organizations performance. This system can generate a variety of destructive customer-cancerous activities, or it can
motivate people to perform in ways that create profitable loyal customers. In this kind of customer-centered culture,
the organizations simple and natural structures are given conscious direction so that all employees and customers look
for ways to improve the organizations effectiveness, helping it to grow and thrive. It is an ongoing evolutionary process
that transforms a customer service focus into a strong CustomerCulture.
CustomerCulture draws on lessons from some legendary sales and service enterprises, particularly FedEx and UPS,
as well as midsized concerns, small businesses, and startups, to demonstrate how leaders and managers can consciously
develop the cultural structures or systems that will motivate employees to focus on serving their customers (internal or
external) for sustained, profitable growth.
PART I: SYSTEMSA STORY

Basch believes that in the current economy, employees are the only factor that can keep a company innovating and
evolving constantly, and it is only well-designed goal/relevance/action/feedback systems that can optimize employee focus
on giving power to customers. He says that it is no longer about customer service but about congruent and continuous
customer experiences driven by culturalizing nearly every interaction. GET THE PACKAGES is a prime example.
Business Book Review Vol. 19, No. 22 Copyright 2002 Business Book Review, LLC All Rights Reserved

Customer Culture

Michael D. Basch

Expecting at least 300 packages to be delivered, FedEx

about what they want, and refrain from tying peoples hands,
had a mere two packages in its system on the first day of
they get what they wantoften in unexpected ways.
operations (March 12, 1973). Thus, on that first day, an
Basch believes that if FedEx had gotten the 300 packages
immediate and compelling Ordinary people working with extraordinary systems deliver extraorvision was created for all dinary results. Systems, not people, drive 95% of what goes on
FedEx peopleGET THE within an organization.
PACKAGES. This was
powerful motivation for hundreds of employees to do
on the first day, it would not be the industry leader it has
whatever necessary to GET THE PACKAGES. Packages
become, because it would have become sloppy about service
meant everything to the companygrowth, customers, and
and customer focus. From his perspective, the company
financing. As a result, the GET THE PACKAGES vision
learned through failure that failure is the feedback of a
permeated every level of the organization. Pilots landed
well-designed system, whether that design is conscious or
their planes and then made sales calls. Other pilots ran
unconscious. Moreover, employees had the freedom and
pickup and delivery stations. One used his personal credit
focus (GET THE PACKAGES) to used that feedback to
card to pay a fuel bill so his plane would be allowed to
take the necessary actions to achieve the goal. In startups,
depart. And, a driver pawned his watch to buy gas in order
the goal/relevance/action/feedback cycle is natural and not
to complete his deliveries. With people interpreting this
obstructed by politically driven motivations; that is why, in
vision, each in their own way, FedEx gained the strength
the authors estimation, startups are so stimulating.
that eventually allowed it to dominate in the marketplace.
Nonetheless, FedExs obsession with GETTING THE
Founder Fred Smiths ethic was People-Profit (Later,
PACKAGE has led to a strong service culture that has
Basch added Service to the mix, making the companys
lasted throughout the life of the company and is getting
mantra: PeopleServiceProfit.). Smith understood
stronger. By consciously developing customer-focused
that if the company focused on the employees, they would
systems in almost every part of the operation, and using
produce the profit. People are powerful when they have a
technology, the company has been able to maintain market
common vision and commitment. Thus, if leaders are clear
share in the face of brutal competition and still retain its
entrepreneurial spirit. These systems are not, however,
information systems, but well-designed cause-and-effect
systems that tie choice and actions to outcome.
About the Author
Michael D. Basch was a founding officer of
FedEx, where he spent 10 years as senior vice
president and led the teams that invented the companys bar code tracing system, built its SuperHub,
and founded the FedEx Business Logistics
Division. Prior to that, he spent eight years at
UPS, serving in sales, personnel, operations,
and industrial engineering. After leaving FedEx,
Basch founded and served as president of Service
Impact, a firm specializing in leadership. Currently,
he is CIO of Enalasys Corporation, a company
that develops advanced diagnostic technology to
improve the quality, comfort, and cost of the indoor
environment.
For more information, please visit:
www.michael@basch.name

PART II: SYSTEMSTHE THEORY

Basch boldly states that [Cultural] systems, not people,

drive 95 percent of what goes on within an organization.
Thus, if companies want to change their results, they must
change their cultural systems, for these systems drive the
organization and the behavior of its employees. People
learn and act on things that provide the greatest personal
reward. If that action is in alignment with corporate goals,
the organization and its employees benefit. If it is not, all
suffer. However, most learning and behavior is unconscious,
driven by the cultural system. If people are applauded for
providing exceptional service, they will put themselves out
to serve customers in extraordinary ways. But, if people
receive no benefit or recognition, their desire to serve will
diminish, and a norm of poor service (Customer Cancer)
will eventually emerge. If this should occur, the norm

Business Book Review Vol. 19, No. 22 Copyright 2002 Business Book Review, LLC All Rights Reserved

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Customer Culture

Michael D. Basch

cannot be changed via conventional techniques, only

through changing the underlying cultural structures.
According to the author, well-designed cultural systems
have six primary attributes: (1) a clear picture of the desired
customer experiencevision, (2) a code of conduct (i.e.,
rules) of the game that will not be compromisedvalues,
(3) specific time-critical results that the organization
desires to achievegoals, (4) the peoples desire or
determination to achieve the goalsrelevance, (5) the
results (i.e., scoreboard) that informs people of their relative
successfeedback, and (6) the specific procedures taken

purpose is to focus people on activities that increase value

to customers. Thus, says Basch, shareholder value tells
only a very small and mostly irrelevant part of what really
motivates people. Goals must relate to the overall objective
of sustained (long-term, employee-oriented), profitable
(short-term, owner-oriented) growth (mid-term, customeroriented). In addition, everyone must know the goals. Goals
understood only by an organizations leadership are only
achieved by dictate. Moreover, in order for the cultural
system to work, people must perceive that the goals are
relevant, and they must receive feedback on how they
are achieving them. However,
All too often, company leaders espouse all the right things and
if the goals are not measurable,
take actions that change the relevance equation or, to put it anoth- feedback becomes subjective and
er way, wrest control from the employee and give the power solely judgmental.
to management.
In order for goals to be met,
by the people to achieve the goalsactions.
they must be personally relevant to those responsible for
Vision is the organizations light, gravitational force,
achieving them. Incentives, recognition, managements
and compass. In practical terms, it is the experience
attention and focus, and/or other ways of providing
that the enterprise is attempting to create for customers,
consequences that are positive and motivating must be
employees, and owners. That experience is then condensed
present. If there is no relevance, all innovation and direction
into a headline that provides direction (e.g., Absolutely,
must come from top management where there may be little
Positively, Overnight.). However, vision is more than
visibility to customers or awareness of customer needs.
headlines; it is an evolutionary value curve that most
And, if top management assumes relevance based on its
CustomerCultures possess in one way or the other. The goal
limited view, the people who are to take action are often
is to build an organizational culture that continually evolves
unaware of what the companys objectives are.
to deliver greater and greater value to its customers over
What management focuses on is key. If management
time, which leads to more and more sales and profits.
talks about customer and people goals, but actually attends
Values, which, like vision, communicate the sense of
more to how many sales are being made, sales (owner
principles that the corporate leader would instill if he or
objectives) become more relevant than customers or people.
she were present in every operation, provide the boundaries
Over time, hanging on to ones job becomes more relevant
that prevent the-ends-justify-the-means mentality from
than finding better ways to serve customers and owners,
developing. Thus, they are the noncompromisables which,
and the organization becomes stagnant. It is a negative
when practiced by all employees, define the organization
relevance system that is often driven by egos rather than
(i.e., a consistent customer experience in action). For
sound business practices.
example, a core UPS value is cleanliness. However, this
Management must also understand that it gets what it
value does not just show up in the companys policy manual,
recognizes. Basch notes that most management styles tend
but is a solid value that is lived in action: UPS washes every
to assume that if 95 percent of what is happening is good,
truck every day, whether it needs it or not.
all it has to do is focus on the 5 percent that is not good and
Goals, the deliverables within a given timeframe,
then correct it. However, when the focus is on the undesired
focus and direct customers, employees, and owners.
5 percent, the company gets more, not less, of it.
Although many leaders concentrate on the numbers, the
Feedback informs people if they are, or are not, achieving
purpose of a business is to serve people. In this context,
their objectives. According to Basch, when people are
goals are balanced; customers, employees, and owners
able to compare the desired result to the actual result,
are all important in developing goal categories, whose
they will move to correct the situation in ways that senior
Business Book Review Vol. 19, No. 22 Copyright 2002 Business Book Review, LLC All Rights Reserved

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Customer Culture

Michael D. Basch

management cannot foresee. Although this would seem to

customers despite the interruptions of turf-protecting senior
mean that feedback is more important than either goals or
managers. This covert action to bypass the dysfunctional
relevance, all three are equally important. If objectives are
cultural structure is what some midlevel executives at a
not clear and balanced, feedback is irrelevant. If objectives
major manufacturer call the Phoenix Dog Piss Theory.
are not relevant, feedback is ignored.
Another consideration for big bureaucratic companies
If all else is in place, actions happen automatically
is how to optimize a well-conceived CustomerCulture
to achieve the goals, leading the enterprise to continually
so as to become more nimble in a fast-changing world.
evolve and to achieve higher and higher levels of success.
Basch believes that the example of the aircraft carrier is
If the frontline can articulate
Relevance systems that are in alignment with company goals give
the vision and have a good idea
people the strong perception that meeting the goals is essential to
of company values; if goals are
the company, are very relevant to each person, and are the types of
clear and relevant, and if people
relevance systems that work.
receive objective feedback, the
organization is ready to capitalize on CustomerCulture.
very instructive in this regard: The big, powerful carrier
Basch notes that at this point, anxious to get people fired
provides the support system for the fighter planes. The
up about serving customers, most senior managers bring
planes provide the nimbleness and the ability to engage
in charismatic speakers or launch customer training
the enemy, anywhere the enemy exists. In other words, they
initiatives. He says, however, that a much simpler and more
are close to the customer and capable of changing quickly
effective approach is to let employees invent how they are
with every change in the marketplace.
going to serve the customer. When people invent their
This is a fitting analogy for companies that distribute
own way of delivering service, the service becomes truly
their products through third-party retailers or small
extraordinary. Moreover, frontline employees typically
companies. As the carrier, the large company can provide
know better than anyone else, including the customer,
supportmarketing, operations, technology, etc.for its
what the customer needs.
channel partners (i.e., the planes) and make money by
helping them acquire new customers. The company can
PART III: SYSTEMSTHE PRACTICE
also offer its partners cobranded, high-performing Web
According to Basch, sustainability means focusing on
sites, which provide channel partners with an affordable
customers. Profitability means delivering enough value so
way to connect to a national brand, and provide the company
that the customer pays for profits. Growth means focusing
with a very powerful information system.
on sales without compromising customers or owners. Thus,
When a company has a wealth of partners in daily
with every new program, companies must ask: Will this
contact with customers and dealing with local markets, and
focus people in ways that support sustained, profitable
when it adds an intelligence system that constantly gathers
growth? Are the goals clear, balanced, and in alignment
information and disseminates what works to others, the
with the vision? Are the goals relevant to the people
company begins to build a CustomerCulture that is way
responsible for doing the work without suboptimizing
ahead of the competition. With little or no risk (risks are
the whole? Is the feedback clear and simple, and does the
incurred by channel partners), continuous innovation is
feedback create appropriate actions? If the answers are yes
enabled, as a means of meeting customer needs.
to all, the program cannot help but succeed.
Despite the relative simplicity and cost efficiency of
Unfortunately, the typical large organization tends to
this kind of program, few companies have implemented
suboptimize systems with poorly designed and executed
it. Basch believes that this lack of action is due to culture.
cultural structures, providing incentive for employees to
Because most channel dependent companies view their
turn their backs on customers and to avoid opportunities
channel partners as customers, they take a sales approach
that would benefit the entire company. When egos,
rather than one that focuses on partnership. The systemic
instead of a well-defined cultural structure, attempt to
problem is poor vision, poor goals, and poor relevance.
run the organization in counterproductive ways, frontline
people and middle management often take actions to serve
Business Book Review Vol. 19, No. 22 Copyright 2002 Business Book Review, LLC All Rights Reserved

Page 4

Customer Culture

Michael D. Basch

Although the author views the essence of working

with channel partners as the creation of high-performing
systems for delivering increasingly higher and higher value
to customers, he warns of the dangers of oversystemizing.
The best time to capture customers is when they have a
problem the company can solve, for a problem resolved
turns an upset customer into a raving fan. FedEx has
understood this from the beginning. Even in its major push
to lower costs by automating its tracking and information
systems, it still enables the frustrated customer to talk with a

the only result is an organization that is upside down

and backward. The fundamental systemic cause of poor
customer focus and suboptimized goals is still alive and
kicking. He believes that a better solution is the single egg
organization, invented by a team of frontline employees
at a health care insurance company, frustrated with the
organizations inability to serve new customers quickly.
The single egg organization is customer-centric in that
customers are clearly in the middle of the organization
and surrounded by the people who can support them. This
form can be represented
Fully 90% of what most people and companies do is habitual, yet most
by a series of concentric
people and companies continue not to systemize the routine and often
circles, with each circle
try to systemize the exception.
representing a customer
to the next circle out. The
person. The point is to systemize the routine and humanize
customer is the inside circle and thus, the focal point of the
the exception. However, system designers too often try
entire organization. However, each suborganization (sales,
to automate functions that should remain human; thus,
marketing, products, information, service, administration)
voicemail systems and Internet sites are wrongly employed
has its own customer set.
to deal with irate customers. In the process, far more time
Another challenge that many companies must
and resources are spent on systems than are necessary and,
face is how to refocus employees quickly, simply, and
in the end, customers are lost.
inexpensively when they find their attention turning
Systemizing the routine and humanizing the exception
inward. FedEx and many other companies have met this
are most effectively accomplished by involving employees
challenge by implementing the Hierarchy of Horrors.
and viewing each as a problem solver. The idea is to
One day, Fred Smith, deciding to challenge the rule
challenge engineers or systems people to automate the
that said 95 percent was the optimum level of service,
habitual and challenge service people to humanize how
created what he called a Hierarchy of Horrors. He asked
they deal with the upset customer. If they are forced to
his senior management team to determine what is the worst
reduce the costs of handling customer problems, they are
thing, the next worst thing, etc., of the 5 percent of things
likely to come up with some very creative solutions.
that represent customer-service failures, the company can
Although the goal of any organization is sustained
do to the customer. They identified eight major horrors,
profitable growth, in the traditional hierarchical
with losing or damaging a package as the worst thing, and
organization, with the CEO at the top (and the customer
delivering a package a few minutes late as the least-worst
on the bottom), goals are suboptimized. Different functions,
thing. Next, they assigned relative values to each horror as
each with different goals, focus only on the piece of the
a means of developing the feedback and relevance systems
whole that relates to its specific mission, but not on the
for focusing employees on resolving each issue. Then, under
customer. The sales department focuses on growth, often
the feedback system, they created a method for measuring
at the expense of profit; finance focuses on profits, often at
the number of incidences for each of the horrors identified.
the expense of growth, etc. The result is an internal power
The number of incidences, times the points, added up each
struggle and a customer who receives mixed signals from
day, came to be known as the Service Quality Index (SQI).
the company. The company also loses because neither sales
The goal was to grow the company while lowering the
nor finance has an incentive to deliver increasing customer
SQI, which meant that every employee had to significantly
value that leads to sustained profitable growth.
improve his or her service quality.
To rectify this lack of customer focus, customer
As a result of this initiative, FedExs on-time delivery
leadership turns the organizational pyramid on its head,
percentage went from 95 percent to 99.7 percent (plus or
putting the customer on top. Basch warns, however, that
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Customer Culture

minus), without adding significantly to operation costs.

Basch notes that this improvement was made possible
because the process totally engaged every employee. Thus,
he views the Hierarchy of Horrors as probably being the
easiest, most cost-effective, and best way to get employees
to focus on their customers, whether those customers are
inside or outside the organization. This is because the
process helps people to stand back from their daily routines
and view the service they provide from their customers
shoes. When they do that, they become more sensitive to
any problem the customer might have, whether or not it fits
into the Horror system.
The Hierarchy of Horrors, like all change processes,
depends on creating a CustomerCulture that enables people
to adapt to and, even, embrace change. And, this requires
understanding the core principle (People dont mind
change. They mind being changed.) and understanding
the dynamics of change: People will feel uncomfortable
and ill at ease. People will feel alone. People will feel that
they can handle only so much change at a time. People
will look at the negative first. People will believe that there
are not enough resources. People will be at different levels
of readiness. And, without outside influence, people will
revert back to where they started.
These dynamics form the basis of a process that Basch
believes is compatible with systems thinking, is simple, and
if followed to the letter, nearly always advances an idea
toward a solution while engaging peoples commitment to
the idea.
1. Present ideas before they become actions and give
people the opportunity to be part of the change.
2. To get and keep energy high, identify the pluses.
3. Have people express concerns or obstacles as
how to instead of you cant or its too
expensive so that they become creative about
change and to ameliorate peoples inability to
handle too much change at once.
4. Get people involved in solving problems
together.
5. Develop the next steps. People believe that their
work in evolving a solution is worthwhile if specific
actions result. It is also important to define what,
who, and when for each of the actions identified.

Michael D. Basch

6. To prevent people from reverting back to where

they started, follow up on any commitment to
act.
APPENDIX A: THE VISION OF THE IDEAL AT A
FEDERAL EXPRESS STATION
APPENDIX B: THE UPS PHILOSOPHY AS STATED BY
ITS FOUNDER

***
A subject index is provided.

Remarks
CustomerCulture is a simple, yet powerful, primer for
taking customer service to extraordinary levels, because
it clearly links every aspect of a business: management,
leadership, HR, teamwork, finance, sales, marketing,
manufacturing, development, information technology, and
strategic thinking. The result is a picture of an integrated,
healthy culture of the customer that influences performance
and profit over the long term. It is a system that Basch says
works for a raccoon in search of food, a person attempting
to lose weight, a government attempting to resolve a
societal problem, or an organization attempting to improve
customer focus [which seems to cover just about everything
of importance in our world]. We tend to agree, for the
integrated systemic approach advocated here is based on the
principles of cause and effect, which most of science (and
even some religions) believe is the fundamental principle
of this universe, from which all phenomena arise.
The book is also about constant and never-ending
change, another fundamental principle, and one that
is inherent to cause and effect. The CustomerCulture
theory and practice Basch details provide the framework
for creating organizations where change is a given. In
particular, the change process forms the basis of FedExs
CustomerCultureits beginnings, growth, and dominance
of its industry. And, it is so basic that the author insists
that it can be used to do most anything: lay off people;
implement new technologies; reorganize a company
get people seeing change as an opportunity for growth
and advancement Thus, the books principles can
be effectively used in any situation, inside or outside the
organization, where people desire to change their behavior

Business Book Review Vol. 19, No. 22 Copyright 2002 Business Book Review, LLC All Rights Reserved

Page 6

Customer Culture

in order to fulfill their mission more effectively and focus

on delivering more value to all with whom they come into
contact.
However, we concur with Jay Abraham (author of
Getting Everything You Can Get Out of All Youve Got),
who says in his advance praise for CustomerCulture that it
should be mandatory reading for every manager, supervisor,
staff member and new hire. Building a CustomerCulture
is not only about management and corporate leadership, it
is also (and most importantly) about the frontlineabout
empowering the little people to become passionate about
delivering extraordinary service. Thus, if an organization
truly intends to build a strong, inclusive relationship
between its stated vision, values, and the people with the
responsibility of putting vision and values into action, it
will make this work available to everyone throughout
the enterprise and involve everyone in implementing its
principles and leading organizational change.

Michael D. Basch

exercises for building a vision, systemizing the routine, and

implementing change; the story behind the invention of the
Eagle Card; examples of effective feedback tools; a unique
perspective on why the Clinton administrations health care
reform initiative failed; how to use the change process to
reduce your workforce and provide creative solutions to
your problems; the story of the Brisbane dentist who took
his name out of the phone book, locked his doors, and fired
75 percent of his customers; compelling quotes from Fred
Smith, Jim Casey of UPS (in Appendix B), and others; and
much, much more.
Obviously, we are suggesting that your only recourse is
to read the work in its entirety (including the appendices)
and be prepared to take copious notes. Basch is an excellent
writer who is not only an authority on the subject, and
an insider, he is also excited about the subject, and his
excitement makes for emotional, as well as intellectual,
stimulation. Moreover, his narrative style is concrete, free
of jargon, and gets to the point, clearly and succinctly. Thus,
the book is accessible to the widest possible audience and
can possibly be read in less time than weve estimated.

Reading Suggestions
Reading time: 10-12 hours, 290 Pages in Book

CustomerCulture is divided into three parts: The

Theory, The Application, and The Results. The Theory
details how the CustomerCulture theory was formulated,
using FedExs startup story as background, along with other
examples, and shows why it is a very practical and effective
way to run an organization and to participate in one. The
Application section provides some very specific actions that
FedEx and other companies have taken, as well as steps
your organization can take, to focus your employees on their
customers. The Results details how a CustomerCulture is
created in a small dental business in Australia, a technology
startup, and as part of a turnaround initiative.
It is possible to read the first section, and only those
parts of the second and third sections that interest you, and
come away with a basic understanding of the fundamental
principles and practices of building a customer-focused
organization. However, we believe that if you use this
approach, you will miss a lot of the valuable and provocative
details: how the UPS system reduces transaction costs and
mis-sorts; how FedEx implemented on-time departure;
Business Book Review Vol. 19, No. 22 Copyright 2002 Business Book Review, LLC All Rights Reserved

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Customer Culture

Michael D. Basch

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