Cuckoo for Customers

Rackers are motivated to provide fanatical service not because of a catchy motto, but because each team is treated as its own separate business, with responsibility for its own P&L. Every month, employees can earn bonuses of up to 20% of their monthly base salaries depending on the performance of their units by both financial and customer-centric measures: How low is customer turnover? How much did existing customers expand their business with the company? How many customers referred new business to Rackspace? And how profitable was the group overall? Each quarter, employees re-ceive additional bonuses if companywide performance goals are reached.

"That's a serious incentive," says Frederick Mendler, 29, who leads two teams that together serve 1,200 medium-sized customers and who is responsible for more than $15.6 million of revenue. "At most companies, these policies are just lip service, but that's our bonus you're talking about."

Fanaticism has its rewards for Rackspace, too. The e-tastrophe of the past few years has decimated the ranks of dotcoms and driven once-powerful rivals such as Exodus Communications into bankruptcy. Yet privately held Rackspace has posted net profits since 2002; its revenue grew 50% in 2003, to $58.6 million; and it has 5,500 customers, up from 56 in 1999. Fanatical customer service may be mildly nuts, but there's clearly a method to Rackspace's madness.

Sidebar: Finding Your Inner Fanatic

4 Ways Rackspace Creates an Obsessive Service Culture

1. Measure it. Customer service is reflected in the time it takes to resolve a problem, in the number of customers that renew or expand their business with your company, and in the number of referrals your company gets from existing customers. Rackspace receives 50% of its new business from customer referrals.
2. Pay for it. Rackspace employees' monthly bonuses depend on how well they serve customers. David Bryce, the company's vice president of customer service, is part of the senior executive team, and every job candidate in his division interviews with him, demonstrating the company's commitment to great service.
3. Motivate it. Public recognition of achievement--customer compliments posted on the wall, fanatic signs hanging above the desks of winners of the straightjacket award--gives individual Rackers a status boost among their peers, and something for everyone to aspire to.
4. Enforce it. If you're serious about service, then rudeness to a customer is inexcusable. At the same time, if employees are committed to providing great service, they deserve unconditional management support. This year, three employees left because they didn't "get" Rackspace's service ethic--and one customer was fired for being abusive to Rackspace employees.

Alison Overholt is a Fast Company staff writer.

Discussion Guide

Interested in further exploring some of the ideas and issues in this article? Consider starting a Fast Company reading group. Here are some possible conversation catalysts:

Does your company's IT staff fit into the stereotype? Why does this stereotype persist? What obstacles exist in implementing a customer service program like Rackspace's within your IT department? Could it be implemented elsewhere, instead or in addition to IT? How would you go about measuring tangible results?