Business Book Review Vol. 19, No.

22 Copyright 2002 Business Book Review, LLC All Rights Reserved

Business Book Review

Business Book Review

We Select and Review Only the

Best Business Books You Should Read.
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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.
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
CustomerCulture
How FedEx and Other Great Companies
Put the Customer First Every Day
Michael D. Basch
Volume 19, Number 22 Copyright 2002 Business Book Review, LLC All Rights Reserved
Michael D. Basch Customer Culture
Page 2 Business Book Review Vol. 19, No. 22 Copyright 2002 Business Book Review, LLC All Rights Reserved
Expecting at least 300 packages to be delivered, FedEx
had a mere two packages in its system on the first day of
operations (March 12, 1973). Thus, on that first day, an
immediate and compelling
vision was created for all
FedEx peopleGET THE
PACKAGES. This was
powerful motivation for hundreds of employees to do
whatever necessary to GET THE PACKAGES. Packages
meant everything to the companygrowth, customers, and
financing. As a result, the GET THE PACKAGES vision
permeated every level of the organization. Pilots landed
their planes and then made sales calls. Other pilots ran
pickup and delivery stations. One used his personal credit
card to pay a fuel bill so his plane would be allowed to
depart. And, a driver pawned his watch to buy gas in order
to complete his deliveries. With people interpreting this
vision, each in their own way, FedEx gained the strength
that eventually allowed it to dominate in the marketplace.
Founder Fred Smiths ethic was People-Profit (Later,
Basch added Service to the mix, making the companys
mantra: PeopleServiceProfit.). Smith understood
that if the company focused on the employees, they would
produce the profit. People are powerful when they have a
common vision and commitment. Thus, if leaders are clear
about what they want, and refrain from tying peoples hands,
they get what they wantoften in unexpected ways.
Basch believes that if FedEx had gotten the 300 packages
on the first day, it would not be the industry leader it has
become, because it would have become sloppy about service
and customer focus. From his perspective, the company
learned through failure that failure is the feedback of a
well-designed system, whether that design is conscious or
unconscious. Moreover, employees had the freedom and
focus (GET THE PACKAGES) to used that feedback to
take the necessary actions to achieve the goal. In startups,
the goal/relevance/action/feedback cycle is natural and not
obstructed by politically driven motivations; that is why, in
the authors estimation, startups are so stimulating.
Nonetheless, FedExs obsession with GETTING THE
PACKAGE has led to a strong service culture that has
lasted throughout the life of the company and is getting
stronger. By consciously developing customer-focused
systems in almost every part of the operation, and using
technology, the company has been able to maintain market
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.
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
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 com-
panys 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
Ordinary people working with extraordinary systems deliver extraor-
dinary results. Systems, not people, drive 95% of what goes on
within an organization.
Michael D. Basch Customer Culture
Page 3 Business Book Review Vol. 19, No. 22 Copyright 2002 Business Book Review, LLC All Rights Reserved
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
by the people to achieve the goalsactions.
Vision is the organizations light, gravitational force,
and compass. In practical terms, it is the experience
that the enterprise is attempting to create for customers,
employees, and owners. That experience is then condensed
into a headline that provides direction (e.g., Absolutely,
Positively, Overnight.). However, vision is more than
headlines; it is an evolutionary value curve that most
CustomerCultures possess in one way or the other. The goal
is to build an organizational culture that continually evolves
to deliver greater and greater value to its customers over
time, which leads to more and more sales and profits.
Values, which, like vision, communicate the sense of
principles that the corporate leader would instill if he or
she were present in every operation, provide the boundaries
that prevent the-ends-justify-the-means mentality from
developing. Thus, they are the noncompromisables which,
when practiced by all employees, define the organization
(i.e., a consistent customer experience in action). For
example, a core UPS value is cleanliness. However, this
value does not just show up in the companys policy manual,
but is a solid value that is lived in action: UPS washes every
truck every day, whether it needs it or not.
Goals, the deliverables within a given timeframe,
focus and direct customers, employees, and owners.
Although many leaders concentrate on the numbers, the
purpose of a business is to serve people. In this context,
goals are balanced; customers, employees, and owners
are all important in developing goal categories, whose
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, customer-
oriented). 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,
if the goals are not measurable,
feedback becomes subjective and
judgmental.
In order for goals to be met,
they must be personally relevant to those responsible for
achieving them. Incentives, recognition, managements
attention and focus, and/or other ways of providing
consequences that are positive and motivating must be
present. If there is no relevance, all innovation and direction
must come from top management where there may be little
visibility to customers or awareness of customer needs.
And, if top management assumes relevance based on its
limited view, the people who are to take action are often
unaware of what the companys objectives are.
What management focuses on is key. If management
talks about customer and people goals, but actually attends
more to how many sales are being made, sales (owner
objectives) become more relevant than customers or people.
Over time, hanging on to ones job becomes more relevant
than finding better ways to serve customers and owners,
and the organization becomes stagnant. It is a negative
relevance system that is often driven by egos rather than
sound business practices.
Management must also understand that it gets what it
recognizes. Basch notes that most management styles tend
to assume that if 95 percent of what is happening is good,
all it has to do is focus on the 5 percent that is not good and
then correct it. However, when the focus is on the undesired
5 percent, the company gets more, not less, of it.
Feedback informs people if they are, or are not, achieving
their objectives. According to Basch, when people are
able to compare the desired result to the actual result,
they will move to correct the situation in ways that senior
All too often, company leaders espouse all the right things and
take actions that change the relevance equation or, to put it anoth-
er way, wrest control from the employee and give the power solely
to management.
Michael D. Basch Customer Culture
Page 4 Business Book Review Vol. 19, No. 22 Copyright 2002 Business Book Review, LLC All Rights Reserved
management cannot foresee. Although this would seem to
mean that feedback is more important than either goals or
relevance, all three are equally important. If objectives are
not clear and balanced, feedback is irrelevant. If objectives
are not relevant, feedback is ignored.
If all else is in place, actions happen automatically
to achieve the goals, leading the enterprise to continually
evolve and to achieve higher and higher levels of success.
If the frontline can articulate
the vision and have a good idea
of company values; if goals are
clear and relevant, and if people
receive objective feedback, the
organization is ready to capitalize on CustomerCulture.
Basch notes that at this point, anxious to get people fired
up about serving customers, most senior managers bring
in charismatic speakers or launch customer training
initiatives. He says, however, that a much simpler and more
effective approach is to let employees invent how they are
going to serve the customer. When people invent their
own way of delivering service, the service becomes truly
extraordinary. Moreover, frontline employees typically
know better than anyone else, including the customer,
what the customer needs.
PART III: SYSTEMSTHE PRACTICE
According to Basch, sustainability means focusing on
customers. Profitability means delivering enough value so
that the customer pays for profits. Growth means focusing
on sales without compromising customers or owners. Thus,
with every new program, companies must ask: Will this
focus people in ways that support sustained, profitable
growth? Are the goals clear, balanced, and in alignment
with the vision? Are the goals relevant to the people
responsible for doing the work without suboptimizing
the whole? Is the feedback clear and simple, and does the
feedback create appropriate actions? If the answers are yes
to all, the program cannot help but succeed.
Unfortunately, the typical large organization tends to
suboptimize systems with poorly designed and executed
cultural structures, providing incentive for employees to
turn their backs on customers and to avoid opportunities
that would benefit the entire company. When egos,
instead of a well-defined cultural structure, attempt to
run the organization in counterproductive ways, frontline
people and middle management often take actions to serve
customers despite the interruptions of turf-protecting senior
managers. This covert action to bypass the dysfunctional
cultural structure is what some midlevel executives at a
major manufacturer call the Phoenix Dog Piss Theory.
Another consideration for big bureaucratic companies
is how to optimize a well-conceived CustomerCulture
so as to become more nimble in a fast-changing world.
Basch believes that the example of the aircraft carrier is
very instructive in this regard: The big, powerful carrier
provides the support system for the fighter planes. The
planes provide the nimbleness and the ability to engage
the enemy, anywhere the enemy exists. In other words, they
are close to the customer and capable of changing quickly
with every change in the marketplace.
This is a fitting analogy for companies that distribute
their products through third-party retailers or small
companies. As the carrier, the large company can provide
supportmarketing, operations, technology, etc.for its
channel partners (i.e., the planes) and make money by
helping them acquire new customers. The company can
also offer its partners cobranded, high-performing Web
sites, which provide channel partners with an affordable
way to connect to a national brand, and provide the company
with a very powerful information system.
When a company has a wealth of partners in daily
contact with customers and dealing with local markets, and
when it adds an intelligence system that constantly gathers
information and disseminates what works to others, the
company begins to build a CustomerCulture that is way
ahead of the competition. With little or no risk (risks are
incurred by channel partners), continuous innovation is
enabled, as a means of meeting customer needs.
Despite the relative simplicity and cost efficiency of
this kind of program, few companies have implemented
it. Basch believes that this lack of action is due to culture.
Because most channel dependent companies view their
channel partners as customers, they take a sales approach
rather than one that focuses on partnership. The systemic
problem is poor vision, poor goals, and poor relevance.
Relevance systems that are in alignment with company goals give
people the strong perception that meeting the goals is essential to
the company, are very relevant to each person, and are the types of
relevance systems that work.
Michael D. Basch Customer Culture
Page 5 Business Book Review Vol. 19, No. 22 Copyright 2002 Business Book Review, LLC All Rights Reserved
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
person. The point is to systemize the routine and humanize
the exception. However, system designers too often try
to automate functions that should remain human; thus,
voicemail systems and Internet sites are wrongly employed
to deal with irate customers. In the process, far more time
and resources are spent on systems than are necessary and,
in the end, customers are lost.
Systemizing the routine and humanizing the exception
are most effectively accomplished by involving employees
and viewing each as a problem solver. The idea is to
challenge engineers or systems people to automate the
habitual and challenge service people to humanize how
they deal with the upset customer. If they are forced to
reduce the costs of handling customer problems, they are
likely to come up with some very creative solutions.
Although the goal of any organization is sustained
profitable growth, in the traditional hierarchical
organization, with the CEO at the top (and the customer
on the bottom), goals are suboptimized. Different functions,
each with different goals, focus only on the piece of the
whole that relates to its specific mission, but not on the
customer. The sales department focuses on growth, often
at the expense of profit; finance focuses on profits, often at
the expense of growth, etc. The result is an internal power
struggle and a customer who receives mixed signals from
the company. The company also loses because neither sales
nor finance has an incentive to deliver increasing customer
value that leads to sustained profitable growth.
To rectify this lack of customer focus, customer
leadership turns the organizational pyramid on its head,
putting the customer on top. Basch warns, however, that
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
by a series of concentric
circles, with each circle
representing a customer
to the next circle out. The
customer is the inside circle and thus, the focal point of the
entire organization. However, each suborganization (sales,
marketing, products, information, service, administration)
has its own customer set.
Another challenge that many companies must
face is how to refocus employees quickly, simply, and
inexpensively when they find their attention turning
inward. FedEx and many other companies have met this
challenge by implementing the Hierarchy of Horrors.
One day, Fred Smith, deciding to challenge the rule
that said 95 percent was the optimum level of service,
created what he called a Hierarchy of Horrors. He asked
his senior management team to determine what is the worst
thing, the next worst thing, etc., of the 5 percent of things
that represent customer-service failures, the company can
do to the customer. They identified eight major horrors,
with losing or damaging a package as the worst thing, and
delivering a package a few minutes late as the least-worst
thing. Next, they assigned relative values to each horror as
a means of developing the feedback and relevance systems
for focusing employees on resolving each issue. Then, under
the feedback system, they created a method for measuring
the number of incidences for each of the horrors identified.
The number of incidences, times the points, added up each
day, came to be known as the Service Quality Index (SQI).
The goal was to grow the company while lowering the
SQI, which meant that every employee had to significantly
improve his or her service quality.
As a result of this initiative, FedExs on-time delivery
percentage went from 95 percent to 99.7 percent (plus or
Fully 90% of what most people and companies do is habitual, yet most
people and companies continue not to systemize the routine and often
try to systemize the exception.
Michael D. Basch Customer Culture
Page 6 Business Book Review Vol. 19, No. 22 Copyright 2002 Business Book Review, LLC All Rights Reserved
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.
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
Michael D. Basch Customer Culture
Page 7 Business Book Review Vol. 19, No. 22 Copyright 2002 Business Book Review, LLC All Rights Reserved
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.
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;
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.
Michael D. Basch Customer Culture
Page 8 Business Book Review Vol. 19, No. 22 Copyright 2002 Business Book Review, LLC All Rights Reserved
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