Case Study: Best Practices at the FedEx Corporation

Abstract:

The case examines FedEx Corporation's various innovative HR practices, which earned it
the reputation of being one of the most employee-friendly companies in the world.
The case gives an overview of the best practices employed by the company in the
recruitment, selection, training and development of employees. It also details the
performance appraisal system and employee retention strategies of FedEx. Finally,
the case reviews the benefits reaped by the company because of its employee
friendly HR practices.

Issues:

» Understand the role of an organizational philosophy in the development of human

resource policies in a multinational organization

Introduction:

In 2003, Fortune magazine featured FedEx Corporation (FedEx),2 a leading global

logistics solutions provider, among the list of 100 'best companies to work for' in the US.
This was the fifth consecutive year in which FedEx's name had figured in the list. The
company had received a high rating in areas like compensation, employee retention
morale and work diversity. The companies in the list were ranked on the basis of an
employee survey that evaluated employees' trust in management, pride in doing work at
the company, and sense of camaraderie. Apart from the survey, a general evaluation of
the company's philosophy and its HR practices was also conducted
FedEx was among the first few companies in the world to develop a formal HR policy
which viewed employees as a means for achieving long-term growth and profitability.
Framed and valued since FedEx's inception in 1973, the people-service-profit (PSP)
philosophy (Refer Exhibit I) viewed employees as the key contributors to the company's
profitability.

During its three decades in the business, FedEx had introduced several innovative HR
practices. The company devised a corporate communication program, known as the
'Survey Feedback Action' program, to encourage employees to give feedback on
management policies.

FedEx's 'Guaranteed Fair Treatment Procedure' ensured that all types of employee
grievances were addressed. The company had also devised employee development
programs such as 'Job Change Application Tracking System' to provide temporary
employees the opportunity to gain regular employment at FedEx.

The company's 'Leadership Evaluation and Awareness Process' gave FedEx's non-
managerial employees the opportunity to seek managerial positions at FedEx. FedEx had
also devised a succession planning mechanism - Succession Planning Executive
Education - to groom its senior management employees for top management positions.
FedEx also conducted internal employee training programs, which were designed along
the lines of executive education programs offered by management institutes. FedEx was
considered one of the most employee-friendly companies in the world because its
innovative HR initiatives aimed at achieving maximum employee satisfaction.
Complimenting FedEx for its HR policies, Work Force magazine wrote, "FedEx is an
example of an organization that has created an effective HR strategy that supports
productivity and profitability. The corporation's philosophy is that employees should be
doing the kind of work they want to do." 3

Background Note:
The history of FedEx dates back to 1971, when Frederick W. Smith (Smith)4 realized the
need for an airfreight system which could deliver documents overnight. He decided to
setup his own company to effectively serve this need. The company was incorporated as
'Federal Express Corporation' in June 1971 at Little Rock, Arkansas, US, with an initial
investment of $84 mn. In March 1973, FedEx shifted its airline operations to Memphis,
Tennessee, US. In April 1973, FedEx commenced full-fledged operations with its
network spread across 25 cities in the US. This marked the beginning of the air/ground
express industry.

FedEx had suffered losses during the initial years of operations, but by 1976 it had started
generating profits. In the same year, FedEx built a massive hub at Memphis, which
eventually became the base of FedEx's operations across the world. FedEx's net income
of $3.5 mn in fiscal 1976 increased to $8.1 mn in 1977...

1] As quoted in the article, "FedEx Strategy to Stay Ahead of Competition," by Jimmy Yeow, Business Times, July 21,
1999.

2] FedEx is one of the world's largest express transportation companies, providing information and logistics solutions
services. For the financial year ending May 2003, the company generated revenues of $22.5 bn and a net income of
$1.47 bn.
3] As quoted in the article, "HR's Push For Productivity," posted on www.workforce.com, September 3, 2002.

4] A Vietnam War veteran, Smith created the overnight air and ground express delivery industry when he setup FedEx
in 1973. He led FedEx through its initial phases of turmoil, to become a market leader in the industry.

Fedex's HR Practices

Since its inception, FedEx's management focused on providing a suitable work

environment that encouraged employees to come up with innovative solutions.
Employees responded positively to the faith reposed in them and displayed exemplary
commitment towards their work. The extent of the commitment of the employees could
be gauged from the fact that during the first couple of years, when the company was
going through severe financial difficulties, the employees were prepared to sell their
personal belongings and use their own credit cards to purchase fuel to deliver the
packages to the customers. Even when the employees didn't receive their salary on time,
they continued working with FedEx.

Smith believed that since FedEx was a service organization, its success depended heavily
on its employees. Hence, in 1973, he developed and implemented FedEx's 'People-
Service-Profit' (PSP) philosophy. According to this philosophy, if FedEx took proper care
of its employees, they would provide efficient service to the customers, which would in
turn benefit the company by generating more profits. This philosophy formed the basis of
all management decisions taken at FedEx...
Growth Opportunities

FedEx believed in promoting people from within for higher management cadres. The
SFA program helped management take decisions regarding promotions, though its utility
was confined to evaluating the performance of the managerial cadre employees only.
FedEx also provided opportunities to employees from the non-managerial cadres to move
up to the managerial level. In order to encourage non-managerial cadre employees to
move to the managerial level within the organization, FedEx devised a unique program
known as 'Leadership Evaluation and Awareness Process' (LEAP).

This program was conceived in 1988, when FedEx observed that 10% of the non-
managerial cadre employees who were given managerial level tasks for the first time quit
the organization within 14 months of taking up their new tasks. Under the LEAP
program, these employees got the opportunity to assess their ability to take up managerial
responsibilities...

Employee Communication and Performance Appraisal

At FedEx, two-way communication between the management and the employees was
encouraged. The employees were allowed to freely express their opinions about
management's policies.

The company also devised mechanism to address and resolve employee grievances, apart
from employing a formal communication system to inform employees about the major
events taking place in the company. The employee communication programs
implemented by FedEx included the SFA program, Guaranteed Fair Treatment Procedure
(GFTP) and Open Door Policy (ODP).

Employee Retention
Employee retention was a significant aspect of FedEx's HR policy. Commenting on the
significance of retaining the employees, McMahan said, "In our competitive marketplace,
employee loyalty tends to be low. If employees don't like their jobs, they simply walk
across the street and find a new one. It's important to keep your people happy and to
create an environment where they want to stay."...

The Benefits Reaped

Over the years, FedEx developed several innovative HR programs that served as a
benchmark for many organizations, particularly in the service industry. These programs
not only yielded financial benefits for FedEx (through improved employee productivity
levels), they also enhanced the reputation of the company as an employee-friendly,
service-oriented organization. FedEx's employee-friendly policies resulted in very low
turnover rate. In 2000, the turnover rate was estimated to be below 6%, while the industry
average was 20%...