AB311: STRATEGIC MANAGEMENT Individual Case Assignment

FedEx Corp: Structural Transformation Through e-Business

Submitted by: Neo Chun How Alton 076585E04 Seminar Group: Tutor: Number of Pages: TUT 8 Dr. Josephine Lang 16 (Excluding cover page)

Contents
Introduction ................................................................................................................................ 3 Express Transportation and Logistics Industry.......................................................................... 4 FedExs Strategy ........................................................................................................................ 6 External Assessment ................................................................................................................ 11 General Environment ........................................................................................................... 11 Porters 5 Forces................................................................................................................... 12 Internal Assessment ................................................................................................................. 14 Culture and Leadership: ....................................................................................................... 14 Conclusion ............................................................................................................................... 15 References ................................................................................................................................ 17

Introduction
FedEx is incorporated in 1973 and it has since transformed itself from an express delivery company into a global logistics and supply-chain management company. Within a short span of time, FedEx has invested heavily in its physical transportation and information infrastructures. Through its pioneering information systems applications, FedEx has set the stage for the logistics industry.

FedExs annual revenue was US$29.4 billion and has presence in over 220 countries, with more than 260,000 employees and contractors worldwide. Despite having all the necessary ingredients for a successful e-business, the Companys logistics and supply-chain operations were in fact struggling to shine through and break away from the historical image of it being an express delivery business. To make matters worse, competition was intense and there were many market speculations that FedExs transportation volume growth was slowing down, even though it was poised to take advantage of the surge in traffic that e-tailing and ecommence were supposed to generate.

In 2000, FedEx announced major reorganisations costing more than US$100 million over three years in the Groups operations in the hope of leveraging its cross-company synergies and its information and logistics infrastructures to create complete e-business solutions for its customers. The five subsidiary companies were to function independently but to compete collectively. In addition to streamlining many functions, FedEx has also made plans to pool resources in sales, marketing, customer services and IT so that customers would have a single point of access to the whole Group. The new organization is geared to help businesses of all sizes in achieving their goals.

Express Transportation and Logistics Industry

FedEx invented the air/ground express industry in 1973 and has focused on its unique five major stages of the supply chain management model, sourcing, inbound logistics, manufacturing, order management and outbound logistics. This transformation has strengthened FedExs competitive position and its core competencies are now in express transportation and in e-solutions by providing holistic solutions to customers for managing their selling and supply chains. Competition began to build up in the early 1980s when United Parcel Services (UPS) competed directly with FedEx in the overnight delivery business and focused on customer segmentation, pricing and quality of service. To avoid price wars, customer service has to be improved together with the development of a wellmanaged logistics operation to reduce the order cycle.

Despite losses in the initial years of operation due to high capital investments in the physical transportation infrastructure of the business, FedEx brought about the growth in the express transportation and logistics industry. As businesses globalised, coupled with the

advancement in information technology (IT) and the application of new technology to generate process efficiencies, new solutions were in demand to deliver to wherever customers conducted business and speed was of the essence to achieve competitiveness.

Up until the 1980s, logistics was merely the handling, warehousing and transportation of goods. By combining the functions of materials management and physical distribution, logistics took on a new and broader meaning where inbound as well as outbound material flow and the movement of finished goods. FedEx capitalized on this transition and aimed at managing all aspects of logistics.

Over the years, FedEx invested heavily in IT systems, and with the launch of the internet in 1994, the potential for further integration of systems to provide services throughout its customers supply-chains became enormous. In 1998, FedEx acquired Caliber Systems, Inc. for US$88 million. FedEx has now built a powerful technical architecture that had the potential to pioneer the Internet commerce. Under Fred Smiths leadership, FedEx was the first to give away PCs loaded with its software, designed to track the customers packages and was also the pioneer to issue handheld scanners to its drivers to alert customers of when their packages were picked up or delivered. Smith was the visionary who forced his company and other companies to think outside of the proverbial box. Mission Statement:

Frederick Smith FedEx CEO and founder FedEx Corporation will produce superior financial returns for its shareowners by providing high value-added logistics, transportation and related information services through focused operating companies. Customer requirements will be met in the highest quality manner appropriate to each market segment served. FedEx Corporation will strive to develop mutually rewarding relationships with its employees, partners and suppliers. Safety will be the first consideration in all operations. Corporate activities will be conducted to the highest ethical and professional standards. Source: Fedex Website

FedExs Strategy

FedExs strategy was to capitalize on the growth of e-business and aimed at integrating its physical transportation with its virtual information infrastructures to create a large matrix of systems that meets the needs of businesses ranging from transportation services to complete supply chain management solutions. FedEx has taken a customer focused approach and all systems are centered on the customer. The process of building the systems and technology infrastructure was the first step in the transformation. Next, was the integration of business processes into these systems. This was not an easy task and required expertise in logistics and supply chain management. FedEx was following the technology agewhich was taking place in the US at that time and piggy backed on the growing e-business market. The final step is for FedEx to transform its business and make people aware of the innovations and advancement. This was done by the announcement of the January 2000 restructuring, which would cost approximately US$100 million over three years. After the revamp of its e-business model, Fedex was able to create value for its customers by promoting efficiency gains, facilitating better collaboration and communication between the various parties in the supply chains and also helped organisations, both big and small, to transform into high performance e-businesses. FedEx Strategy at the Business Level FedExs clients ranged from individual customers to large scale businesses and they require a wide range of services. As such, FedEx had streamlined its operations and integrated its various systems in order to meet the demands of the various groups of customers that it provided services to. In addition, FedExalso developed a customer logistics management segment of its business to cater especially to its large-scale business clients that required such services. The FedEx business epitomises the competitive use of information technology and

this included the providing of warehousing and distribution services that significantly reduce the costs for its business customers. After identifying the needs of its clientele, FedEx made use of the extensive resource base and well-established logistics infrastructure to meet the needs of its individual customers. Such a strategy demonstrates that FedEx had a very innovative way of dealing with the paradox of leveraging on its resources and adapting to the market. The express delivery option used to be a rush or emergency solution but now, it is viewed as a competitive weapon and partnering with FedEx has encouraged businesses to rethink about their competitive strategy as FedEx understood the value of information for all its clients. As such, FedEx has continuously searched for various ways to improve the transfer of information between itself and its customers and to encourage companies to reconfigure their activities around the global value-added chains in order to minimise costs and tap into localised expertise. It has expanded global market size for virtually all industries whilst incurring no incremental costs in connecting new endpoints to new or existing endpoints. FedExs website was launched in 1994 but even before that, it had developed several computer programs and systems that allowed its customers to track their packages. As demand for better information grew, FedEx tapped into its pool of IT professionals to develop a system to meet the needs of its customers with ever growing appetite for real-time information. FedEx Strategy at the Corporate Level Acquisition became the strategy to better meet the needs of FedExs customers. FedEx created a corporation to meet most of the logistics and transportation needs of companies through the acquisition of Parts Bank in 1988 and Caliber Systems some ten years later in 1998. FedEx Strategy at the Network Level FedEx has positioned itself to respond well in the globalisation of business and markets by building a physical distribution network and a virtual information network to provide global

reach for its customers. Hence, at the network level, FedEx needs to consider cooperation and competition with other firms, regardless of whether these are suppliers, customers, government agencies, or industry rivals and FedEx has played and will continue to play a central role in shaping the way businesses evolve in the context of the network economy. Currently, FedExs strategy has the power to outdo its rivals and position itself as the market leader by ensuring that it capitalises on the resources that it currently has such as the pipeline to conduct the material and information exchanges that occur between a business, its suppliers, its distributors and its customers based on precise scheduling. FedExs alliance with Netscape and Dell in developing systems that benefit its clients business has demonstrated that FedEx understands the value of such relationships and it will be able to generate customer loyalty and forge long-term relationships with its customers in ensuring a long-term commitment from both parties. Analysis and Recommendations for FedEx in 2000 In 1999, FedEx announced that the increase in oil prices has eroded its core business and was the major cause of its poor performance. The entire transportation industry was also a victim of the rising oil prices. At the end of 1999, FedExs business was also divided among five subsidiary companies, as detailed in Exhibit 5 of the case. Each subsidiary had its own market niche: Federal Express specialised in 24 to 48-hour deliveries by ground and air to anywhere in the world. RPS specialised in ground deliveries in North America. Caliber Logistics specialised in customised, integrated logistics and warehouse solutions worldwide. Roberts Express specialised in special-handling shipments by air or ground. Viking Freight specialised in ground deliveries in Western US.

Before the reorganisation, FedEx presented five different faces to its customers under the five company names. Each subsidiary operated independently and had its own sales and marketing team, customer list, accounting department, etc, and many support functions were duplicated. Larger customers have expressed discontent in dealing with more than one subsidiary company because the experience was cumbersome and complicated. The onus was on the customer to identify the service it required from FedEx and to contact the correct subsidiary company. It was common for a number of package pick-up couriers to visit the same office address to pick up packages requiring different delivery services and customers will be invoiced separately with each subsidiary. The following factors contributed to exerting pressure on FedEx to consolidate its operations, while remaining customer-focused: The Web encourages businesses to present a consistent face to its customers. As such, the FedEx website was revamped to present the full portfolio of services to customers and customers benefit from the more user-friendly customer interface. FedExs current information systems infrastructure was underutilised and it prompted the sharing of information across the different business units. The ability to pool information such as customer lists, ability to provide holistic transportation and logistics solutions to customers streamlined its operations to reduce costs. Customer loyalty is determined by customer service and service quality. The focus has shifted from satisfaction with product quality to satisfaction with service quality and having updated information about customers help to promote better customer service. The one-stop solution of centralising sales, marketing and customer service functions fully exploited the network of information systems FedEx had. Previously, there were multiple brands under the FedEx umbrella and FedExs reputation was built on the reliability it provided to customers for overnight

deliveries. FedEx realigned its physical distribution and virtual information infrastructures to exploit the FedEx brand. Marketing efforts have to be concentrated under one brand. Hence, the obvious competitive advantage was to strengthen the FedEx brand and avoid confusion among customers. Given that FedExs businesses are at the related constrained level of diversification, the cooperative form of the multi-divisional structure is the most suitable to align each divisions objectives with the corporate strategy. Horizontal integration brings about interdivisional cooperation and the sharing of divisional competencies facilitates the development of economies of scope. Following the January 2000 reorganisation, it is likely, though not obvious from the case, that through frequent and direct contact between division managers, resources and competencies can be shared and overall corporate performance can be emphasized in addition to divisional performance.

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External Assessment
General Environment

FedEx developed a global network which offers services beyond transportation, including full service management tools and support. FedEx led the way in the deregulation of the transportation industry, which resulted in economic competition and a significant decrease in transportation costs. The number of export packages transported by FedEx has been growing steadily at an annual rate of over 15 percent. FedEx has tripled its market share over the last 7 years.The evolution and success of FedEx has had a multiplier effect on the U.S. economy and it continues to make technological and operational advances that are impacting on global markets as well.

FedEx has sought technological advances in response to customer needs, and has excelled in anticipating and projecting demands of an environment that would depend and thrive on information.The family of companies representing FedEx operates hubs all over the world, giving customers limitless opportunities to expand their customer base.

FedEx had to re-evaluate its target markets in order to improve its performance and it should seriously consider placing more importance on small and medium scale clients. FedExs strategy had always focused on improving its services to its large-scale clients, but it should also pay more attention to smaller clients, previously dominated by its rival, UPS.

Transforming from a conventional business to an e-business proved no mean feat for any company and FedEx was of no exception. By creating a massive information systems network, realigning its organisational structure to leverage on its technological expertise and

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integrating its processes with those of its customers, FedEx has successfully built a model of an e-business. Of overall importance to this model was still the role of visionary leadership and the ability to foresee and contribute to the network economy.

Porters 5 Forces

Threat of New Entrants: The threat of new entrants is low in the parcel industry. It is low because it is very expensive to get involved in the industry. Starts up costs are high. It is expensive to have the services that are equal to that of FedEx and the other competitors. Bargaining Power of Suppliers: The bargaining power of suppliers is high. It is high because of the items that the parcel industry uses in their business such as, planes, computers, and vehicles. If FedEx is not on good relations with its suppliers, the costs can increase drastically. Bargaining Power of Buyers: The buyers have a very strong bargaining power. They have the ability to switch from FedEx to one of the other members of the industry at any time. It is the job of FedEx to make sure that the customer is always happy. It comes at no extra cost to the buyer to switch their parcel delivery company. The only loss that is really suffered comes at the expense of the company for losing a client. Product Substitutes: It is very easy to substitute a delivery service. There are not many out there but the ones that are well established in the eyes of the customer and the industry pose a serious threat to FedExs core business. It would not be a complex task to switch from one company to another. Since this is the case, FedEx has to maintain good customer relations with their clients. Intensity of Rivalry: The parcel industry is an intense industry. There are five main players as depicted in the case, in the industry competing for market share. The features that they are

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competing on are the speed of delivery, the efficiency of the delivery, and prices. If FedEx can create a successful mix of the three of those factors, it will hold the greatest market share.

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Internal Assessment
Culture and Leadership:

Fred Smith, the creative leader of FedEx, instilled that wherever business is conducted, the use of FedExs core values is an important ingredient to success. The use of IT to its business enabled FedEx to surpass the rest of the industry. Smiths objective was to outsmart his competitors and attempt to gain a competitive advantage. He rationed that the company should acquire its own transportation fleet while competitors were buying space on commercial airlines and sub-contracting their shipments to third parties. Even though FedEx did not see any profit until 1976, it earned the reputation of being absolutely, positively reliable on its overnight delivery commitments, an image that has become fundamental to FedExs overall success. Employee performance is something Smith firmly believes in and is set in providing as much information as necessary to all of his employees for them to perform their jobs in an efficient manner. He demonstrates this by being a role model and his workers also adopted his style of work.

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Conclusion
According to an article from Traffic World on 5 January 2009, FedEx is starting 2009 by grounding aircraft, parking other equipment, cutting capital spending and even cutting executive pay to gel the company's scale in line with a declining shipping market. After FedEx underwent the process of reorganisation and changed the names of all its subsidiaries to carry the FedEx name, it should focus its strategy on addressing the paradox of responsiveness and synergies. Given the current economic situation, the company must be more versatile and responsive to market needs and changes without sacrificing the synergy that it had established in the past. FedEx has many ways in which it adds value to the organization. First of all, a good line of communication with the customer adds value because it allows FedEx to see what the customers needs and desires are. In addition, all of FedExs computer systems and programs really add value. They keep the company more organized by making the tracking of the packages easier along with facilitating FedExs focus of on time deliveries. Technological development has always been a major way for FedEx to add value since it can cut costs along with creating new ways of finding competitive advantages. Lastly, FedExs improving and changing of the organizational structure over the last few years has added value. By

developing different subsidiaries all operating under the FedEx brand name has organized the company along with improving the communication inside the company from one division to another.

FedEx has enhanced information management in terms of being able to identify the critical factors involved with its success of an e-business. It has successfully transformed from a conventional business into an advanced e-business in its network economy. FedEx has succeeded in several areas including: visionary leadership in the application of new

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technologies, defining the information infrastructure, integrating internal processes, and aligning the organizational structure for maximum benefits. FedExs key strategy was customer service and for its customers to adapt into its new information technology. FedEx harnessed its new technologies and extended the electronic business to all of its customers. FedEx has developed this technology and made it possible for its customers to connect with them in any way the customer chooses. The restructuring of FedEx addressed many processes but in particular the integration of logistics as well as supply chain management proved to be most successful. The enabled FedEx to cut inventory levels, reduce costs as well as shortening order-cycle time. This was key for FedEx to improve the quality of service they provided to their customers. FedEx has laid out a vast matrix of transportation and information networks that will provide them with a huge competitive advantage for some time. To function as an e-business company, it will need to become increasingly customer/solutions focused. All processes must be integrated to ensure a unified customer centered front that provides services throughout the value chain, logistics, and parcel carrier business. FedExs new restructuring will serve their customers and apply new technologies constantly to improve their response time and the value of the information they provide. FedEx will continue to build, innovate, and exploit technologies from the successful base that they have created and will be on top of the industry for a long time to come.

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References
Batt, J. et al, (2000), Industry studies 2000: Transportation. The Industrial College of the Armed Forces, [online], 8 May 2006, available at: <http://www.ndu.edu/icaf/industry/2000/transportation/transportation.htm>. Basch, Michael. Customer Culture: How FedEx and Other Great Companies Put the Customer First Every Day. Financial Times: 2002. http://vig.pearsoned.com/store/product/1,3498,store-562_isbn-0130353310_typeALL_editmode-1,00.html Conley, W, Farhoomad, A, & Ng, P, (2000), Building an E-business at FedEx Corporation. [online] 7 May, 2006, available at: <http://www.simnet.org/Content/NavigationMenu/Resources/Library/Paper_Award _Winners/Download_Page2res/20002ndPl.pdf>. De Wit, B & Meyer, R, (2003) Strategy, process, content, context: An international perspective, 3rd ed, London: Thomson Learning. Grant, R, (2003), Contemporary strategy analysis: Concepts, techniques, applications. Boston: Blackwell Publishing. Isidore, C, (1999), FDX burned by fuel costs. CNN Money. [online] 8 May 2006, available at: <http://money.cnn.com/1999/12/16/companies/fdx/>. Joachim, D., FedEx Delivers on CEOs IT Vision, Internetweek, http://www.infoxpress.com/reviewtracker/reprints Rigsby, J, Greco, G., (2002), Mastering strategy: Insights from the worlds greatest leaders and thinkers. New York: McGraw Hill, pp 179-190. Turner, C, (2000), The Information E-Conomy: Business Strategies for Competing in the Global Age, London: Cogan, pp 51-56. Wetherbe, James C. The World on Time: The Eleven Principles that made FedEx an Overnight Sensation. Santa Monica: Knowledge Exchange, 1996.

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