Strategic Management methods used by FedEx

FedEx Corporation (FedEx) is widely acknowledged for having sparked a revolution in just-in-time delivery. In 1973, Federal Express Corporation (‘FedEx’) changed itself from a fast service delivery company to a worldwide logistic and supply-chain management company. FedEx Corp. was founded in 1973 by Fred Smith. It has been quoted as the inventor of the express transportation industry and customer logistics management. During 27 years of operation, FedEx earned a myriad of accolades and won over 194 awards for operational excellence. In 1983, FedEx became the first US Company to achieve the US$1 billion revenues mark within a decade without corporate acquisitions and mergers. Today, FedEx is the largest express transportation company with about 30 per cent of the market share.

FedEx was incorporated in 1997 to serve as the holding company parent of FedEx Express and each of their other operating companies listed, along with their functions, as follows:

FedEx Express – Largest U.S. Company offering time-certain delivery of envelopes, packages, multi-piece shipments and freight up to 150lbs., within one to three business days and serving 214 countries including every U.S. address.

FedEx Ground – FedEx Ground is North America’s second largest provider of business and residential money-back-guaranteed small-package ground delivery service, behind UPS. FedEx Ground provides low-cost residential delivery to nearly 100% of U.S. residences through its FedEx Home Delivery service.

FedEx Freight – One of the top 5 carriers providing next-day and second-day regional LTL (less-than-truckload) heavyweight consolidated freight services, over 150 lbs in both the United States and international markets.

FedEx Custom Critical – Offers non-stop, time-specific, door-to-door delivery of time-critical and special-handling shipments within the United States, Canada and Europe.

FedEx Trade Networks – Provides international trade services including customs brokerage, trade advisory services, information technology, e-clearance and air and ocean freight forwarding.

FedEx Services – Comprises the consolidated sales, marketing and technology support for FedEx Express and FedEx Ground and offers extensive supply chain management solutions through its FedEx Supply Chain Services, Inc. subsidiary.

FedEx Kinko’s – Provides personal and business publishing/copying solutions as well as being a FedEx shipping centre, through a network of more than 1,200 digitally connected locations in 10 countries.

FedEx has transformed itself into an e-business by integrating physical and virtual infrastructures

across information system, business development and organizational bounds. Such techno business design and inter-enterprise process integration have in turn allowed FedEx to transform its business model from managing inventory at rest to managing inventory in motion, thus reducing inventory and making order cycle time more faster. As more companies focus on online technology, FedEx’s experience in building an e-business serves to show how a company can successfully apply its information technology (IT) expertise to pioneer customer-centric innovations with sweeping structural and strategic impact for an entire industry. FedEx was among the very first to imagine how the Internet could become a tool for tracking and conveying shipment information.

In 1974, FedEx started logistics operations with the Parts Bank. In those days, a few small set-ups approached FedEx with their warehousing problems and decided on the idea of overnight distribution of parts.

In 1994, FedEx launched its Website, www.fedex.com that allowed customers to track packages online and to conduct business via the Internet. The company has grown from a $8 billion operation to a $18 billion concern today. The transformation of FedEx Corporation from a physical box mover to an e-business has been at the core of FedEx’s continued growth.

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It was Smith’s commitment to exploiting new technology that led FedEx to give away more than 100,000 sets of PCs full with FedEx software, designed to connect and log clients into FedEx’s ordering and tracking systems in the 1980s. These proprietary online systems were marketed under the PowerShip program. Immediately the company’s customer base was transformed into an electronic network.

In 1994, FedEx earned worldwide certification to the ISO9001 international quality standard. In 1997, FedEx won recertification. While most companies register individual sites, FedEx used technology and a centralized control system to gain registration for its entire worldwide network.

Originally, systems were developed as an aid to more efficient management of its express delivery business. The transportation logistics information system was called the Customer, Operations, Service, Master On-line System (COSMOS). This was the first centralized computer system in the industry used to keep track of all packages handled by the company. COSMOS maintains data on package movement, pickup, invoicing and delivery in a central database at Memphis headquarters. A barcode is attached to each parcel at the point of pickup and scanned up to 20 times (for international shipments) en route, at each stage of the delivery cycle. The COSMOS system handled 63 million transactions per day in 1999.

In 1998, FedEx decided to overhaul its internal IT infrastructure under Project GRID (Global Resources for Information Distribution). The project involved replacing 60,000 dumb terminals and some PCs with over 75,000 network systems.

In 19th January, 2000, FedEx announced major restructuring in the Group’s operations in the hope of making easier to do business with the entire FedEx family.

In March 2000, FedEx launched FedEx Home Delivery, a subsidiary operation within FedEx Ground Services. This new service was created in response to the expanding business-to-consumer market. The National Research Federation estimated that the residential market would grow by 119 percent by 2003, and that much of the growth will be attributable to the Internet.

Technology has unleashed tremendous potential for enhancing FedEx’s business. It has enabled an information infrastructure that allows the managing of inventory in motion, an extension to the ability to manage inventory at rest. More specifically, FedEx has devised integrated supply chain solutions within an e-business framework so that its customers can connect to their customers and their selling and supply chain alliances, thus reducing inventory, shortening order cycle time and improving time-to-market.

In fact, FedEx has been recognized by Information Week as one of the Top 100 Most Innovative Users of Technology. For example, FedEx did not invent the Internet, barcode scanning, or Wi-Fi. But, FedEx was among the very first to imagine how the Internet could become a tool for tracking and conveying shipment information. This is a big deal because tracking has made supply chain management fast and reliable on a global basis. And that’s changed the way the world does business.

Speed became of significance to achieve competitiveness, not only for the transportation companies but also for their customers. The ability to deliver goods quickly shortened the order-to-payment cycle, improved cash flow, and created customer satisfaction. FedEx realizes that customer touch points abound and is committed to making every FedEx experience outstanding.

1.0 Introduction

FedEx Corporation provides a collection of widespread services like business services, transportation, and e-business. It is among the top four logistics companies in the world which is currently operating various locations world wide. It had transformed itself from an express delivery company to a global logistics and supply-chain management company.

1.1 Porter’s Five Forces

Michael Porter, an authority on competitive strategy, developed an important model to analyse a business’s relationships to its industry. It is based on the insight that a corporate strategy should meet the opportunities and threats in the organisation’s external environment. He contends that there are five forcers that should be considered in conducting an industry analysis.

The Five Forces include:

The risk of new competitors entering the industry

Threat of potential substitutes

The bargaining power of buyers

The bargaining power of suppliers and

Degree of rivalry between existing competitors

In addition to the five forces, a sixth force, governmental policies is added to Porter’s model because of its influence on all the other forces.

Figure 1 shows the industry analysis of the five competitive forces that are expected to have the strongest and most immediate effects on the strategic plans of an organisation. The profitability of an industry is shaped by the interactions of these forces.

Figure : Five competitive forces

1.2 Porter’s five forces at FedEx Corporation

Threats of new entrants

There is a high barrier for new entrants to overcome because it is very expensive and time-consuming to start up a major shipping company like FedEx Corporation. Another issue affecting potential entrants is international regulations and trade tax. Most companies present now in the business have already created strong business relationship with overseas countries. New companies will have to demonstrate the same to foreign companies, suppliers, and customers. By applying new technology like IT to the business makes the barrier even more harder to overcome.

Bargaining Power of Suppliers

FedEx has ensured that they have the best suppliers with a scorecard system where FedEx scores its suppliers to measure its their performances while the supplier in return gets to give FedEx feedback on how FedEx can improve. Because the system helps both sides, it may strengthen the customer-supplier relationship.

Rivalry among competing firms

The three competitor of FedEx are DHL, UPS and TNT. Competition was fierce because the competitors cut costs to compete. And they were betting big on technology.

Bargaining Power of Buyers

This is a reasonable force in this industry because competition keeps the same pricing strategy. Firms can maintain higher prices than competitors are those who can add value to their services. Besides, the consumers in this industry are reactionary. They were unaware of the technology before it happens. They become reliant on the technology, service and speed obtainable by the companies in this industry and are ready to pay for the price.

Threats of Substitute Product or Services

The threat of substitutes is moderately weak in this industry. Shipping of cargos and packages can be done by alternative means such as trucks, boats and trains. Moreover, air freight transportation is generally preferred by consumers due to speed, convenience and low cost. None of these three are derived by traditional means of transportation. Shipping of documents can as well be made via Internet, e-mail, and Facsimiles. However, it is very time consuming to scan and load and it is uncertain that the documents reach the final destination. Shipping of documents can as well be made via Internet, e-mail, and Facsimiles. However, it is very time consuming to scan and load and it is uncertain that the documents reach the final destination.

Figure : Porter’s five forces model – FedEx Corporation

1.3 Porter’s Value Chain Techniques

The term “value chain” was first used by Porter (1980). Porter defined the “value chain” as a representation of a firm’s value-adding activities, based on its pricing strategy and cost structure. Porter’s approach highlights actual and potential areas of competitive advantage for the firm. Porter argued that individual firms each have their own value chains that are embedded in value networks (or “value system” in the terminology of Porter), each of which have different functions within an industry or sector that influence (and are influenced by) other actors in the network. The salience of Porter’s discussion was to highlight the interdependences and linkages between vertically arrayed actors in the creation of value for a firm.

Figure 3 groups ‘primary activities’ and ‘support functions’ together, all of which are essential to the value chain. A resource analysis would not only note the particular primary (or support) activities that gave a distinctive advantage to the organisation, but also the strengths that emerged from the combination of all the activities.

Figure : The Porter Value Chain Model can be used as a support to help understand the situation of a business process and a linked technical-solution space

1.4 Value Chain analysis for FedEx Corporation

The value chain analysis for FedEx Corporation begins with the gathering of packages from various locations.

The value-added services for FedEx customers are as follows:

The invention of the air/ground express industry in1973

Overnight delivery market

Worldwide express delivery

The possibility of package pick-ups just about anywhere and anytime

Assuring timely delivery of the packages

Ability to deliver goods quickly, therefore creating value

Expansion into logistics management activities such as order processing, purchasing, production and customer and sales services

First big transportation company that launch a Website that included tracking and tracing capabilities e.g. (the centralised computer system, COSMOS in 1979)

The launch of the Powership programme in 1984, which provides customer with online services such as storing of frequently used addresses, label printing, online package pick up requests, package tracking etc

FedEx Home Delivery

Management teams continue to examine additional cost reduction opportunities as they focus on optimizing their networks, improving their service offerings, enhancing the customer experience and positioning FedEx to increase cash flow and financial returns by improving their operating margin.

Customer service is the final crucial part. Support is provided as well as after sale service by this function. Moreover, FedEx offers customer service during the use of the service by letting customers track their package while it is in route. Extreme value is created for consumers as they can check their packages at any point in time thus ensuring security.

FedEx provides the right ingredients to achieve the objectives of creating value for FedEx customers while at the same time improving profitability for the company.

1.5 Core competencies and capabilities of FedEx Corporation between 1973 and 2000

In Management, core competencies are special capabilities are resources and it is also a unique bundle of skills, knowledge and expertise that allows an organisation to remain competitive and thus are the building blocks to future opportunities.

Figure : Model of Competitive Advantage

Core Competencies are not believed to be fixed. They are meant to change due to the complex and turbulent external environment of a firm. They are flexible and develop over time. As a business develops and adapts to new circumstances and opportunities, so its Core Competencies will have to adapt and change.

Furthermore, FedEx’s competitive position has been strengthened. Its core competencies are now in express transportation and in e-solutions (providing holistic solutions to customers for managing their selling and supply chains). FedEx’s primary competitive advantage has been its IT infrastructure, client-provided software, and website. FedEx has prepared the ground works for enormous potentials in e-business in the future.

Competencies at FedEx are not that much distinctive, as it has strong existing competencies. These include brand name, and a fierce dedication to innovation and technology. In the 1980’s FedEx set a few records with breakthrough technology. These existing competencies enabled FedEx to become the leading express delivery company in the world. Due to these competencies will enable FedEx to make inroads and finally gain a competitive advantage in the shipping industry even though FedEx still pursue UPS and DHL in terms of competitive advantage.

The capability of FedEx’s corporate strategy was to use IT to help customers take advantage of international markets. By 1988 the company spent billion on IT developments plus millions more on capital expenditure having an IT workforce of 5,000 people. Also the issue of Hand-held scanners to its drivers alerting the customers when packages were picked up or delivered. FedEx became the first big transportation company that launch a Website in 1994 which included tracking and tracing capabilities

Understanding of business success or failure is crucial for creating a successful corporate strategy and is the most important task for managers. For the creation of an efficient strategy, the employment of prescriptive tools, methodologies and models is insufficient and must be accompanied with in-depth conceptual knowledge. Managers should be aware that each business strategy is unique and that a strategy is neither ‘wrong’ nor ‘right’ in any absolute sense. Strategy is about building the competencies needed to dominate future markets.

Figure 5 shows how to use technology to stay competitive

Figure : Using Technology to Stay Competitive

While FedEx had pioneered many logistics solutions that had helped it to achieve economies of scale faster than its competitors, the advantages were quickly eroding as newer technologies became even more powerful and less expensive.

1.6 The main advantages and disadvantages of international trade to FedEx Corporation

1.6.1 Advantages of international trade to FedEx Corporation

FedEx’s business model supports 24-48 hour delivery to anywhere in the world with a fully integrated physical and virtual infrastructure. FedEx has designed an infrastructure that provides integrated services from the point of managing inventory at rest to managing inventory in motion.

On the one hand, FedEx has positioned itself to respond to the trend in the globalization of business and markets by building a physical distribution network and a virtual information network to provide global reach for its customers.

FedEx has reduced distance, making the world smaller. This has changed people’s way of communicating and doing business. Companies can now start selling in distant markets without the time and cost restraints. FedEx has facilitated the traditional limitations of reaching new geographic markets, such as establishing distributorships, regional warehousing and overcoming regulatory hurdles.

FedEx has devised supply chain management solutions within an e-business framework where its customers can connect seamlessly to their customers and their selling and supply chain alliances.

FedEx’s e-business model creates value for its customers in several ways: it provides better communication and collaboration between the various parties along the selling and supply chains; efficiency gains is promoted by reducing costs and increasing order cycle; and organisations are transformed into high performance e-businesses.

1.6.2 Disadvantages of international trade to FedEx Corporation

External factors affect international trade. The company should perform a PEST Framework Analysis which involves Political Aspects, Economic Aspects, Social Aspects and Technological Aspects.

Unpredictable energy prices; a considerable decrease of oil supplies from oil-producing regions or refining capacity and other events as well causing a substantial fall in the supply of aviation fuel. It could have an adverse effect on FedEx operations.

The rising expenses in transportation security and insurance, especially in international freight due to the continuing threats from terrorism.

High implementation, maintenance and failure cost associated with the adoption of sophisticated information technologies.

Many of FedEx Express’ competitors in the international market are government-owned, government-controlled, or government-subsidized carriers. It means that they may possess greater resources, lower cost, less profit maximising sensitivity, and more favorable operating conditions than FedEx does.

Substitute Products for business and personal data exchange pose a threat to FedEx.

Although alliances may help FedEx expand its services, the primary product (shipping) is standardized and alternative suppliers are plentiful. Buyers are thus able to retain a large degree of bargaining power.

Although the shipping industry is quite competitive, there are various opportunities and threats in the form of strategic alliances and acquisitions that pertain to its domestic and international express segments.

Whittington’s ‘Classical’ and ‘Evolutionary’ Schools of Thought in the context of strategy development at FedEx Corporation from 1973 to 2000

In ‘Classical Strategic Management’, the important characteristics is the ‘unity of direction’ linking the strategic goals determined at the ‘head’ of the organisation with the actions to be carried out by all the lower divisions and departments. The activities of the FedEx Corporation are in effect pre-programmed, needing only to be monitored and controlled to keep within specification. In this approach, the critical environment is the competitive one of buyers, suppliers, market entrants, purveyors of substitutes and direct competitors.

On the other hand, ‘Evolutionary Perspective’ emphasises populations of similar organisations. Therefore, strategy has an interest in innovation. Firms who do not produce their own innovations will almost certainly change as a follower, forcing them to mutate into new forms.

Table 1 shows evidence for each of Whittington’s two paradigms

Table : Evidence for each of Whittington’s two paradigms

From year 1973 to 2000, FedEx Corporation has been continuously making sudden moves, growing steadily and surviving lean times.

Since its foundation in 1973 Federal express had became a worldwide logistics and supply-chain management company. Even the competition was intense the company continued to innovate and implement successful projects such as the invention of air/ground express industry in 1973. FedEx continued to launch a series of technological systems to provide rapid, simple and suitable service options for its customers. So as to widen their gap to other competitors, FedEx apply e-business systems so as to increase customer satisfaction as well as their overall business with the customers. In 1979, the COSMOS (Customer, Operations, Service, Master On-line was implemented as a centralised computer system to track every transaction in the process of delivery.

2.1 Applying the two Schools of Thought to FedEx Corporation

The strategic expansion of FedEx was in fact based by the school of thoughts of Whittington.

Table : Different perspectives of the strategy’s elaboration approach (Whittington, 2001)

FedEx used the method of ‘Classical Management’ theory to cut costs when competition put pressure on pricing, increase productivity by applying new technologies, re-examine organizational efficiency and effectiveness.

Through the ‘Evolutionary Perspective’ weaker members of the population are in danger of perishing when conditions become more difficult. FedEx is largely at the mercy of its wider environment, and its priority must be to scan its surroundings for threats and opportunities. The company should be vigilant and have a clear idea of its own market characteristics. This will help protect the organisation from dangers and ensure survival within a population or niche. FedEx learned to adapt marketing strategies applied by product innovators to become adept at delivering game-changing services in light of the unique characteristics of service innovation.

FedEx has created an innovative culture and has been recognized for this with national and international awards. But more important than the accolades is the value delivered to customers.

When FedEx asked its customers what they wanted, they said they want FedEx to help them grow, to collaborate with them, and to expand their markets. FedEx innovations help customers grow their businesses. This is true customer-driven innovation. When your customers grow, you grow. That is the bottom line and FedEx knows this to be true.

FedEx can be said to be an innovative entrepreneur and also an exploiter of change in the Evolutionary Perspective. To maintain market superiority and continued growth and profitability, one of FedEx’s top strategic priorities is improving customer experience. The company struggle for the best performance allowing them to survive and progress.

In my point of view, an Evolutionary approach allows an organisation to develop better tools to deal with evaluating threats and opportunities as well as balancing exploration and exploitation in changing environments. This approach is based on the natural selection principle which means on the market the strongest survives. In this context the manager’s individual strategic decisions are not considered important and his role is limited to maintain the costs low. With this approach the environment is the one that leaves a mark on the strategy’s structure. Only through constant improvement of operational effectiveness, enterprises can reach and maintain profitability. For Weick (1979) the evolutionary model is essential for understanding how individuals and groups make sense of their world and how they organise processes. Here, sense-making is the main mechanism for individuals to understand the environment that surrounds them (Weick, 1995).

Contrary to the competitive approaches of the classical perspective it could be argued that if organisations need to find and fit into a competitive niche in order to survive then their strategies are not deliberate, but emergent.

3.0 ‘Processual School of Thought and the implications for strategic management of each of the four loops

Decision-making lay fully in the domain of managers and leaders.

Stacey’s (1996) analysis tries to capture the problem of strategic change and decisions arenas. He suggests that some outcomes are ‘close to certainty and some are ‘far from certainty’.

The processual view of strategic change is without a doubt a useful mechanism for understanding how organisations devise, develop and implement strategic initiatives. To complement this view, there is a need to understand how individuals interact with each other and how information changes influence strategic activity. For these reasons the perspectives of ‘appreciation’ and ‘information’ must also be considered within the processual view in order to reflect the complexities and issues involved in strategic organisational change.

The rational loop

The rational decision-making perspective involves the rationale application of knowledge to a situation, covering: what are the alternatives, the consequences, the desirability and the criteria for choice. The ‘rational loop’ of discover-choose-act is the ‘classical’ starting point of strategic management for Stacey, though the strategic manager takes an incremental approach. The ‘discoveries’ about the organisation in relation to its environment generate the necessity to ‘choose’ from many possible course of action. When choice is decided, the decision-makers ‘act’, and in the effects of their actions, new discoveries are made about the state of the organisation in its environment, and so on. The rational loop is essentially ‘unitary’.

The overt politics loop

When considering power and politics (the political perspective) one must remember that these aspects are not necessarily a negative aspect of organisational change but can be vital during the strategy process in that power can be used by strong leaders and groups to influence people and their actions. More importantly, power and political manoeuvring may not just be concerned with individuals but also broader interests across the organisation. This political process is ‘overt’, in that it is part of the inevitable bargaining for resources that takes place in any organisation that aims to achieve its goals through different functional activities. The arguments, in public at least, are based on differing ‘rational’ perceptions of the organisation in its environment.

The covert politics loop

New and threatening situations provoke complexities, and responses are made to that in a way that is largely unconscious. The differences between individuals give rise to different ‘coping’ mechanisms. Some people deal with the fear of failure and the challenge that arises from change. They continue to stagnate in their ways they find more suitable refusing to adapt with the new change. Thus, they may gather several same opinions and may form into groups. People see changes as a negative thing, something that creates instability and insecurity. Stacey talked of ‘the organisational defence routines’ in the convert politics loop, where people do not admit due to the frustration and anger which is driving their actions. However, they may form a group and take action to feel secure again.

The culture and cognition

The ‘culture and cognition loop’ sustain the unitary organisation in its ‘shared mental models. The mental models explain how the world around us might limit what we are able to perceive, or discover. As long as everyone subscribes o the organisational culture, and the world does not produce any major surprises, then what is ‘discovered’ over time is likely to fit in with the agreed ‘rationality’ of the organisation. If, however, changes in the environment or the effects of earlier organisational actions produce unexpected consequences then the stability of the culture is shaken. It is very distressful to see individuals implementing the change, and recognize that the old ways cannot be integrated into the new. If they accept the change they should start to mentally prepare themselves. Thus, they challenge or approach issues with different models of how the world works. Hence, contradictions and conflict are introduced, and the unitary organisation begins to fragment into pluralism.

4.0 APPENDICES

4.1 APPENDIX A

Figure 1: FedEx’s Organization structure

4.2 APPENDIX B

Figure 2: FedEx Solutions for the Entire Supply-Chain

4.3 APPENDIX C

An integrated customer order process management: National Semiconductor

Figure 3: The Information Flow Value of Integrated Services to NatSemi’s Customer

4.4 APPENDIX D

The Value Chain Model

Figure 4: The Value Chain Model of an organization

4.5 APPENDIX E

FedEx’s transportation business growth had to face a number of external factors that FedEx was quick to capitalise on. It was based on PEST analysis, that is, Political Factors, Economic Factors, Social Factors and Technological Factors.

These include:

Government deregulation of the airline industry, which permitted the landing of larger freight planes, thus reducing operating costs for FedEx

Deregulation of the trucking industry, which allowed