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1992 Competitive Advantage Optimas Award Profile Federal Express

When Federal Express Corp. became the first service company to receive the Malcolm Baldrige National Quality Award in 1990, it wasn’t by coincidence. Since making its first delivery in 1973, this Memphis, Tennessee-based company has made the motto, “100% Customer Satisfaction,” a high priority.

As Federal Express has grown into one of the nation’s largest express transportation companies, that motto has remained intact. Says Frederick W. Smith, the company’s CEO, “Most companies, as they get bigger, decrease service levels. Federal Express is enjoying the best service levels in its history.”

Although the company’s commitment to customer service can be traced back to its beginnings, it can be traced more recently to Federal Express’ human resources development department.

Realizing that the best possible customer service comes from employees who are well-trained and knowledgeable, the HRD staff began looking in the mid-1980s for a way to present new job information to its 35,000 customer-contact employees, make sure they were learning it and then reward employees for their job knowledge. The result of their efforts was the establishment of a pay-for-performance and a pay-for-knowledge program that’s based on two key elements—interactive video training and job knowledge testing.

For its efforts, Federal Express has been recognized as one of PERSONNEL JOURNAL’s 1992 Optimas Award winners. The award is given annually to companies that display excellence in human resources management in 10 categories, which range from managing change to global outlook. Federal Express is the winner in the Competitive Advantage category.

The need for interactive video training and job knowledge testing was related to the amount of information that the company’s customer contact employees (couriers, customer service agents, ground operations agents and service center agents) needed to know to do their jobs properly. In the words of James L. Barksdale, the company’s COO, “It can be overwhelming.”

Not surprisingly, these employees receive extensive training before they ever come in contact with a customer. For example, before a courier ever delivers a package, he or she has three weeks of training. Before a customer service agent receives a call, he or she will have gone through five weeks of training.

The job knowledge customer contact employees need to perform their jobs doesn’t end there, however. Because Federal Express is constantly making changes or additions to its products and services, the employees’ job curriculums are changing as well. Although the changes can be as simple as a wording change or as complicated as a new product, it isn’t uncommon for as many as 1,500 changes to be made in one year, which was the case for the couriers last year.

“Because we expect our employees to know a lot and keep up with a lot, we have to equip them with enough tools to give them a good running chance to satisfy our customers,” says Larry McMahan, Federal Express’ vice president of human resources development. “We can’t support a customer-oriented objective without having a strong emphasis on training.”

Another challenge facing the HRD department was that, because the company’s customer contact employees were divided into three divisions, their training programs weren’t consistent. As a result, it was possible for customers to receive inconsistent or wrong information, which made them unhappy. Being as committed to its customers as Federal Express is, the company decided that a solution was needed.

In 1986, the HRD department was given money to research a new technology that was out on the market—interactive video—to see if it could support Federal Express’ training needs. As McMahan recalls, the company had come to a point at which it had to rely more on technology for training than on sending out a new course curriculum to instructors who were scattered throughout the country. “That process just wasn’t enough because we couldn’t get to all the thousands of employees quickly enough with all the changes being made,” says McMahan.

Upon completing its research, the HRD department concluded that the interactive video training would solve these problems and others. And in 1987, the company’s top executives approved a five-year plan to invest a substantial sum of money into developing the system. Today there are 1,225 interactive video units in Federal Express’ 650 locations nationwide.

The interactive video training, which supports the company’s recurrent training efforts, consists of a 25-disk curriculum that covers a variety of subjects through different lesson groups. Six disks include information on customer etiquette, while the others cover such topics as dangerous goods, defensive driving and domestic and international products and service.

Some of the typical lessons employees might go through include: delivering packages, calculating rates, loading lessons, international documentation, special services or airbill inquiry. The disks are updated every six weeks to reflect changes in job curriculum.

The interactive video equipment is set up at the hundreds of Federal Express locations in a conference room or an employee meeting area. The actual training isn’t overseen by an instructor, but by a key operator. This person usually is a customer contact employee who has taken on the added responsibility of providing information to employees. Self-explanatory resource guides are also available for those employees who might need additional help.

Employees, however, find the interactive video equipment (which includes a laser disk player, a printer, a monitor with a touch sensitive screen, assorted disks, a student manual and a keyboard) easy to use. In fact, during each lesson, employees are given explicit, step-by-step directions on how to use the video equipment—down to the buttons they need to push to insert or eject laser disks.

This technology not only has made training easy for employees, it has also made it convenient. Because the equipment is located on- site, employees no longer have to travel to a centralized training location at a specified time. In addition, whether an employee works the evening or morning shift, the equipment is available anytime.

Another feature of the interactive video system is that it provides individualized training. Employees can skip ahead in areas they’ve already mastered and review topics in which they need more work. And if an employee feels unfamiliar with a particular subject, he or she can schedule extra time on the video system.

Employees aren’t the only ones to benefit from the interactive video system. Linda Crosby DeBerry, the managing director of Federal Express’ HRD department, points out that the information employees now receive during their training is consistent, eliminating the possibility of customers receiving inconsistent or wrong information. “It’s also allowed us to decentralize our training,” says DeBerry. “Trying to decentralize without a person in 650 locations was a difficult challenge.”

In addition, the department has found that interactive video training is economical. According to McMahan, eliminating travel and entertainment expenses and the need for instructors has saved the company tens of millions of dollars. That savings alone has more than paid for the entire interactive video network. The fact that interactive video training compresses learning time has only added to those savings. “To give you an idea,” says DeBerry, “we’re developing a program on quality. It’s a four-day program, but it will go to 2 1/2 hours seat time.”

Despite the success of the interactive video system, training was only half of the HRD department’s plan to increase employee job knowledge and, in turn, customer service. Having an extensive computer network in place ultimately provided the department with the breakthrough needed to carry out the other half of its plan: job knowledge testing.

By 1987, the HRD staff had already launched a job knowledge testing program, but it only included Federal Express’ 4,000 service agents. The program’s main drawback was that the tests were manually administered paper-and-pencil tests. Not surprisingly, starting such a program for the company’s other customer contact employees—31,000 couriers—seemed like an unmanageable feat. It was the computer system that made it a reality.

Today, all of Federal Express’ customer contact employees take a job knowledge test every six months (yes, twice a year!), which means that anywhere from 5,000 to 6,000 employees are being tested each month. The company pays for four hours of study preparation time and for two hours of actual test time. (If an employee wants to do some extra training for self-improvement, that’s done on his or her own time.)

The job knowledge tests, which include 85 questions, are set up into five blocks, which range from lower to higher levels of difficulty. When an employee begins taking the test in a particular subject matter area, he or she is directed first to the middle-level block or to questions that are of medium difficulty.

Depending on whether or not the employee answers a question correctly, he or she is branched out into a different block. The questions become increasingly difficult if the employee’s answers are correct and less difficult if they’re incorrect. If an employee moves into a more difficult level of questions, it’s assumed that he or she knows the less difficult information.

After the employee takes the test, the computer generates a test score report and a student prescription. At that point, the employee meets with his or her manager, who reviews both documents. This allows the employees to see the areas in which they’re knowledgeable and the areas in which they need more work. The prescription helps the employees to make plans for improvement by telling them where they need to go within the interactive video training (it even provides page numbers) to find the information they need to become more proficient.

Employees who don’t pass the job knowledge test aren’t allowed to return to their jobs. Instead they’re required to repeat the training necessary to pass the test before they can begin working again. Most employees, however, pass the test on their first try. Says McMahan, “We’re not trying to trick people into failing the tests. We want them to do well. This is just a way to measure and improve overall levels of knowledge.”

When Federal Express began implementing its job knowledge testing, DeBerry says there was some discomfort on the part of employees. Because it took a little more time to sell employees on the idea of testing than it did on the interactive video training, DeBerry says it was phased in.

“We felt it was important to give employees an opportunity to see what it was all about,” she says. Once employees saw that they were familiar with a lot of the information on the job knowledge tests and that training was available for them to learn the information needed to pass the tests and ultimately to do their jobs better, DeBerry says employees came to view the process as an important part of their jobs.

Testing 35,000 employees on their job knowledge twice a year may seem like quite an undertaking, but the process has been made easier through the use of the computer system. Because it’s linked corporatewide to Federal Express’ information management system, all of the test scores are stored electronically along with employees’ other personnel records. This has eliminated thousands of clerical hours needed to grade and record test scores manually. DeBerry estimates that the HRD department would need an additional 12 employees if the testing process wasn’t computerized.

The computerized system also has allowed Federal Express to analyze the test answers. The HRD department is now able to figure out where employees’ general strengths and weaknesses are in topical areas, which has helped the staff target its training programs to the areas in which employees need more training. “It’s provided us with an ongoing analysis of our training needs,” says DeBerry.

The way in which training and job knowledge testing are linked to pay is through employee performance evaluations, which are conducted every six months as well. The results of the tests are correlated to one of the performance elements on the employee’s performance evaluation, which determines how well an employee applies his or her knowledge on the job. If he or she does well on the test, then later that employee will score better on his or her performance evaluation and will be entitled to more pay. If the employee is at the top of his or her salary range, then he or she is eligible for proficiency pay.

Since introducing the pay-for-performance and pay-for-knowledge programs through the help of the interactive video training and the job knowledge testing programs, DeBerry says employee job knowledge has increased. For example, there has been improvement in the company’s international paperwork in terms of service and accuracy. To Federal Express, this is a sign that the program is reaching its intended goal: knowledgeable employees offering high-quality customer service.

Because of the success of both programs, there are plans for the HRD department to introduce them to other areas of the company. Interactive video topics may be expanded to include courses on such topics as quality, stress awareness, coaching skills and interviewing techniques. Job knowledge testing may some day be extended to other employee groups, such as managers and staffers.

Overall, McMahan says the interactive video training and job knowledge testing has pushed a greater amount of the responsibility for Federal Express’ commitment to outstanding customer service down to employees, which he sees as a determinant of the company’s future success. Says McMahan, “I think it helps give us a competitive advantage because it’s the employees out there in the trenches who are going to make or break us.”

Personnel Journal, February 1992, Vol. 71, No. 2, pp. 40-46.