INDUS INSTITUTE OF HIGHER EDUCATION

STRATEGIC MANAGEMENT

REPORT ON STRATEGIC MANAGEMENT

Submitted to: Sir. Mehmood shah

Submitted by:
Iftikhar Ali Khan Muhammad Kashif

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Letter of Transmittal

June 21, 2010
Sir. Mehmood shah Indus Institute of Higher Education Karachi, Pakistan. Respected Sir . Mehmood Enclosed is a copy of Report on “Strategic Management of FedEx” which was assigned to our group for the course Strategic Management conducted by you. This Report is a summary of our study and findings of Strategic Management. This report shows the critical analysis of the Strategic Management and the processes applied in Strategic Management. A number of basic principles being applied have also been explained. We are grateful to Allah and all the people who helped us in completing this report. If you have any questions and/or comments regarding the interpretation of this report please feel free to contact us. Thank you for your initiation of this report. Sincerely, IFTIKHAR ALI KHAN MUHAMMAD KASHIF

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Executive Summary
FedEx is one of the fastest growing companies in America and in the world. It is recognized as one of the largest airlines in the world, mostly consumed with shipping freight rather than people. FedEx makes a business out of many different markets and concepts. It works with IT, business solutions, and even ecommerce so it is well documented that FedEx is a broad company trying to reach every consumer. FedEx’s primary competitive advantage has been its IT infrastructure, clientprovided software, and website. With this infrastructure serving as the umbrella between the different companies’ operations, combined with the company philosophy of “operating independently, competing collectively and managed collaboratively”, there exists a very large synergistic force that is driving the company forward. In this strategic audit, we aim to inform educators and analysts of the various important factors in the company’s internal and external environments and how those factors can affect the FedEx both positively as well as negatively. Also we intend to highlights the facts and issues that can be critical for FedEx in the long run. After having considered all the circumstances and factors affecting the company, we judge that the strategic issues that FedEx is confronting with include, pilot unionization & employees’ satisfaction, fuel price fluctuations, and complicated organizational structure and diminishing competitive advantage of FedEx. So to coup up with such concerns, we recommend that FedEx should run its subsidiaries together. It should contracts with large corporations and go for jointventures in order to add cost-saving and value-adding benefits to its services. In order to deal with fuel price fluxes, it should focus on the utilization of alternate energy, lowering cost by enhancing freight capacity, and enter into strategic contracts with oil suppliers. The issue relating to pilot unionization & employees’ satisfaction can be tackled by ensuring that the employees, especially pilots, are well compensated. Since FedEx is a service company, employees are critical to its success.

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Corporate Analysis
Background FedEx Corporation (“FedEx”) is an express transportation company, founded in 1973 by Frederick W. Smith. During his college years, he recognized that the United States was becoming a service-oriented economy and needed a reliable, overnight delivery service company designed to solely transport packages and documents. He wrote a term paper on this idea, and received a ‘C’. His professor thought it would never work. Fortunately for Frederick Smith, he didn’t take it to heart and ended up building that company he dreamed of. He found investors willing to contribute $40 million, used $8 million in family money, and received bank financing. He started Federal Express, headquarters in Memphis, Tennessee, with over $80 million, making it the largest company of its time ever funded by venture capital. Philosophy FedEx Corporation holds a People-Service-Profit philosophy, in particular. The ‘People’ goal is the continuous improvement of management’s leadership. The ‘Service’ standard is 100 percent customer satisfaction. The ‘Profit’ goal is much like any other company’s goal, and is essential to long-term viability. This philosophy governs how FEDEX runs its business, and defines strategies.

Objectives o To protect and respect the environment through outstanding environmental performance and efficiency in the conduct of its operations. o To adapt to changing customer needs to ensure customer satisfaction. o To improve on the ability to compete collectively. o To differentiate the company from competitors. o Improve FedEx’s competitive position. o To dynamically align resources to critical priorities while improving cycle time and return on investment.

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Corporate Strategy o Implement new technological innovations to differentiate FedEx. o Integrate with other companies when there is a common synergy that helps save costs and provide new business opportunities. o Cut costs to gain a competitive advantage over competitors. o Instead of assigning employees to specific business units, reassign teams from one project to another to effectively distribute people with critical talent. o Built a variety of systems to provide a variety of choices to customers. Business Portfolio FedEx is considered to be the U.S. market leader in providing next-day and 2ndday regional less-than-truckload (LTL) freight services. It ships more than 80,000 shipments daily, holds approx 36,000 employees. In 2007, Fortune Magazine ranked FedEx as number six in most admired companies in the world. FedEx Corporation provides a broad portfolio of transportation, e-commerce and business services through companies operating independently, competing collectively and managed collaboratively under the respected FedEx brand. These operating companies are primarily represented by: 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.

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FedEx Kinko’s- Provides personal and business publishing/copying solutions as well as being a FedEx shipping center, through a network of more than 1,200 digitally connected locations in 10 countries. 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- a provider of customer-facing sales, marketing and information technology functions, primarily for FedEx Express and FedEx Ground. FedEx Supply Chain Services- FedEx Supply Chain Services, Inc., a contract logistics provider. FedEx SmartPost- FedEx SmartPost, Inc., a small-parcel consolidator. Caribbean Transportation Services- Caribbean Transportation Services, Inc., a provider of airfreight forwarding services.

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The FedEx Global Network Today the FedEx network links customers to many locations in over 220 countries and territories, in two to three business days.

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Competitive Advantage FedEx’s primary competitive advantage has been its IT infrastructure, clientprovided software, and website. With this infrastructure serving as the umbrella between the different companies’ operations, combined with the company approach of “operating independently, competing collectively”, there exists a very large synergistic force that is driving the company forward. Information technology has always been critical to FedEx, as their strategy is to substitute inventory with information. Typically, the technology links created with customers are intimate, and hard to imitate. There is a lock-in, involved with using FedEx's IT interfaces from the customer's point of view. That has not deterred customers from selecting FedEx solutions. FedEx has pioneered Web based package tracking, a concept which is enormously popular with its customers, and later led to imitation by competitors like UPS. Several business customers are signed up for FedEx services like Virtual Order, and had created extensive online catalogs. This was essentially an online catalog and hosting system. The idea was to provide an integrated e-commerce backbone, and let the business customer figure out the product offering. The customer could build a catalog from scratch, and use it on this backbone, which incorporated FedEx's traditional services like online tracking (see figure below).

Individual customers could also build integrated web sites using FedEx APIs (Applications Programming Interfaces), and incorporate the free Web page code that would enable their customers to track packages directly from their site through the interface. Some of these included, Carsons Ribs, a Chicago based company that sold barbecued ribs, and Unique Photo, a wholesaler of photographic supplies.

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Performance Analysis
Service-Profit Chain

Internal service quality Treat employees fairly – Employee complaints are treated at different level of the organization and will escalate, if necessary, up to the CEO’s office. Employee empowerment – They have a “Discretionary effort” which allows them to do something they judge necessary for customers in tricky situations. Ex.: flat tire on delivery truck, take a cab to finish delivery. No question asked. Growing from within – 91% of promotions are internal. Allow to keep the culture strong. Top-bottom approach: they teach by example. Leadership institutes – Teach their managers: what it is to be a servant leader, to listen to employees and provide them with what they need and to get out of their way to let them do their work. Employee satisfaction Greatest asset for FedEx is their people. They are committed to providing a workplace where their employees and contractors feel respected, satisfied and appreciated. Their policies are designed to promote fairness and respect for everyone. They hire, evaluate and promote employees, and engage contractors, based on their skills and performance. With this in mind, they will not tolerate certain behaviors. These include harassment, violence, intimidation and discrimination of any kind involving race, color, religion, national origin, gender, sexual orientation, age, disability, veteran status or, where applicable, marital status. They do a survey every year.

Operating Strategy a Service Delivery Sys
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Asks for 3 basic questions: 1) How would employees rate their overall satisfaction with working at FedEx? 2) Would they recommend it to others as a place to work? 3) How likely is the employee to continue working at FedEx? Among the 100 best companies to work for – 9 years in a row. 2006, ranked 64th. UPS was not in that list. It is one of the 50 companies in America for minorities. “When people are placed first, they will provide the highest possible service and profits will follow” Frederick Smith (FedEx CEO and founder) Employee retention They do the careful and transparent selection of employees. It costs more but results in very low attrition rate. They also measure the Employee Loyalty Index (ELI) yearly. Employee productivity Measure used: Revenues/employee FedEx: 113 000 UPS: 104 000 Measure used: Profit/employee FedEx: 14,400 UPS: $9,490 External service value Purple promise: make every FedEx experience outstanding (inside and out) Integration of FedEx services within supply chain of its customers – seamless process for customers’ customers. Advantages: broader portfolio of services and best global network Customer satisfaction At FedEx, people from different places and different backgrounds rallying around a common mission: To make every customer experience outstanding. Our customer is at the heart of everything we do. No matter what your transportation needs, lucky for you, there is a FedEx for that… We provide resources to help you increase your efficiency and security in getting your products to Market 10

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Global Network: connecting nearly 90% of the world’s GDP in less than 48 hours Supply Chain Services and consulting Phenomenal portfolio of tailored products and services to fit the unique needs of our customers

We have created a network of Operating Companies to ensure that we have a solution to make sure we are Absolutely, Positively meeting your needs. Frederick Smith The key element to FedEx’s strategic success was offering its customers the “whole package” of products and services that could not be reproduced by competitors. Patented products, strong brands and reputations, its position in the industry, and strengthening its relationships with suppliers and customers allowed FedEx to increase its competencies. Not only was FedEx able to compete with others in packaging and delivering, they were able to dominate their industry because they valued their goals and objectives. Customer Loyalty Integration strengthens the relationship and favours open communication and commitment on each side which affect loyalty positively. Revenue Growth Average over last 5 years: FedEx: 8.4%, UPS: 7.0% Profitability Return on sales: FedEx: 12.7%; UPS: 9.1% Financial Data
Current Assets 3,941 4,970 5,269 6,464 6,629 Current Liabilities 3,335 4,732 4,734 5,473 5,428 Total Debt 8,097 11,098 10,816 11,179 11,344 Total Assets 15,385 19,134 20,404 22,690 24,000 Total Equity 7,288 8,036 9,588 11,511 12,656 Net Income 830 838 1,449 1,806 2,016 Fixed Assets 11,444 14,164 15,135 16,226 17,371 Acc Receiv ables 2,627 3,027 3,297 3,516 3,942

Year 2003 2004 2005 2006 2007

Sales 22,487 24,710 29,363 32,294 35,214

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Financial Ratios
Debt to Asset 0.71 0.78 0.71 0.69 0.65 Debt to Equity 1.11 1.38 1.24 0.97 0.90 Net Profit Margin 0.04 0.03 0.05 0.06 0.06 Return on Total Assets 0.07 0.06 0.10 0.11 0.12 Total Asset Turnover 1.96 1.74 1.94 1.99 2.03 Fixed Asset Turnover 1.96 1.74 1.94 1.99 2.03

Year 2003 2004 2005 2006 2007

Current Ratio 1.18 1.05 1.11 1.18 1.22

Receivable Turnover 8.56 8.16 8.91 9.18 8.93

Sales Data
40,000 20,000 0 2003 2004 2005 2006 2007 29,363 22,487 24,710 32,294 35,214

N et In co m e
3000 2000 1000 0 2003 2004 2005 2006 2007 830 838 1,449 1,806 2,016

Fixed Asset Turnover
2.20 2.00 1.80 1.60 2003 2004 2005 2006 2007 1.96 1.74 1.94 1.99 2.03

Total Asset Turnover
2.20 2.00 1.80 1.60 2003 2004 2005 2006 2007 1.96 1.74 1.94 1.99 2.03

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Receivable Turnover
9.50 9.00 8.50 8.00 7.50 8.91 8.16 9.18 8.93

8.56

2003

2004

2005

2006

2007

Return-on-Assets
0.20 0.10 0.00 0.07 2003 0.06 2004 0.10 0.11 0.12

2005 2006

2007

Debt-to-Asset Ratio
0.80 0.75 0.70 0.65 0.60 0.55 2003 2004 2005 2006 2007 0.71 0.78 0.71 0.69 0.65

Debt-to-Equity Ratio
1.50 1.11 1.00 0.50 0.00 2003 2004 2005 2006 2007 1.38 1.24 0.97 0.90

Net Profit Margin
0.08 0.06 0.04 0.02 0.00 0.05 0.06 0.06

0.04

0.03

2003

2004

2005

2006

2007

Current Ratio
1.18 1.05 1.18 1.22 1.30 1.20 1.10 1.00 0.90

1.11

2003

2004

2005

2006

2007

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Environmental Analysis
P.E.S.T. ANALYSIS

Political-Legal
Opportunities FedEx Express currently holds certificates of authority to serve more foreign countries than any other U.S. all-cargo air carriers—FedEx has an opportunity to offer single-carrier service to many points not served by its principal competitors. Threats Many of FedEx Express' competitors in the international market are governmentowned, government-controlled, or government-subsidized carriers. It entails that they may have greater resources, lower cost, less profit sensitivity, and more favorable operating conditions than FedEx does. Under the Federal Aviation Act of 1958; both the U.S. Department of Transportation (or DOT) and the Federal Aviation Administration (or FAA) exercise regulatory authority over FedEx Express and may from time to time, affect the ability of FedEx Express to operate its aircraft in the most efficient manner. The Aviation and Transportation Security Act. may adopt security related regulations, including new requirements for cargo security, which could impact These regulations have had a restrictive effect on FedEx Express' aircraft operations in some domestic areas.

Economic
Opportunities Globalization—as a trend, the world's economy has become more fully integrated, and barriers and borders to trade continue to decrease. Steady growth in U.S. gross domestic product—U.S. GDP related to international trade has increased substantially over the past 30 years and continues to grow. Continued recovery in Asia’s economy—it may have a favorable impact on the growth of the transportation industry with the acceleration of domestic as well as foreign trade.

Threats 14

Unpredictable energy prices—a substantial reduction of oil supplies from oilproducing regions or refining capacity and other events as well causing a substantial reduction in the supply of aviation fuel. It could have an adverse effect on FedEx operations. The rising costs in transportation security and insurance, especially in international freight due to the continuing threats from terrorism.

Socio-cultural
Opportunities Growing Internet users and e-commerce. E-commerce is a major catalyst of the economy and remains a vital growth engine for businesses today. Change in consumer behavior. Consumer purchases over the Internet continue to grow. The survey involving interviews with 42,238 people in 37 countries worldwide revealed that almost a quarter of internet users have shopped online and 15% plan to do so during the next six months. This represents an opportunity for FedEx as a provider of small-package delivery service. People are increasingly using the Internet as a time-saving resource. People engage in numerous activities online, such as e-mail, planning trips, online banking and online research for their future purchases, all of which are easily completed online. With its sophisticated online services, FedEx can satisfy the consumer requirement of convenience. Change in sales channel combinations used by retailers. According to one study, a significant number of US retailers are selling through a combination of the Internet, in stores, and catalogs. This represents a growing demand for the business-to-customer package delivery service. Business customers increasingly seek for a single solution that can meet all of their global transportation needs, and more businesses are outsourcing their noncore operations. FedEx, as a result, provides its customers access to an integrated set of business solutions and offers a number of initiatives to enhance customer experience. The rise of environmentalism. Today, companies are increasingly expected to take greater responsibility for environmental consequences. To respond, FedEx uses environmental15

friendly recycled and recyclable packaging and has attempted to reduce harmful emissions into the environment through the usage of hybrid vehicles. Such FedEx’s posture toward environmentalism gives consumers an impression that FedEx does make contribution to environmental protection and safeness. Threats o Customers have become less tolerant of service failures and likely to expect better services that are more than the average. o Consumers today demand more for personalized services. It can be a difficult task for FedEx and other businesses to satisfy all customer needs and still be profitable.

Technological
Opportunities Improved information technology—enabling FedEx to integrate subsidiaries and business functions altogether, assisting its single-point-of-access concept. Improvement in wireless technology—FedEx is looking into wireless technology to cut costs and improve customer service. In Asia, it's experimenting with a digital/ink pen called Anoto Chatpen. The cigar sized device, made by Ericsson, uses Bluetooth wireless technology to transport written information, such as a signature or an address, into a database. The Internet—FedEx.com gets about 4.5 million unique visitors a month, which is saving the company $25 million each month by eliminating human involvement in processing package tracking requests. Improvements in aircrafts—the high capacity, cost-efficiency aircrafts make it ideally for FedEx as an air cargo carrier to operate globally. Threats High implementation, maintenance and failure cost associated with the adoption of sophisticated information technologies. Due to the complexity of today’s businesses, benefit derived from highly integrated information system may not be quantifiable for evaluation purposes. Failure in large-scale information technology systems could damage a company’s image and credibility—for FedEx, it can also create a logistic nightmare. 16

Growing concern over hacking and protection of customer information. Rate of Internet penetration—to better serve household and small business customers outside the U.S., the timing and market readiness for its single-pointof-access concept, or information-intensive services, need to be assessed from country to country.

Porter’s MODEL

Threat of New Entrants There is a high barrier for new entrants to overcome because it is very expensive and time consuming to start up an express transportation company that is so large. Acquiring a large fleet of aircraft and/or trucks along with quickly creating a large efficient distribution network are the primary operational hurdles that deter potentials entrants, in addition to the massive marketing costs needed to establish a presence (within an already very competitive industry). Another factor threatening potential entrants is trade tariffs and international regulations. Most companies currently in the industry have already established relations with foreign countries. New companies will have to prove themselves to foreign companies, suppliers, and customers. Lastly, the fact that FedEx exploits new technology as soon as it becomes available makes the barrier even harder to overcome since regularly updated technology is harder to imitate. 17

Bargaining Power of Buyers Opportunities The enhanced infrastructure FedEx has through alliances with such companies as La Poste may cause customers to perceive FedEx as a better company to do business with due to expanded service coverage and reliability. Threats Since shipping is a ubiquitous service and while FedEx is not the only carrier in the various market segments it operates in, these conditions allow customers a variety of choices. With internet access, buyers can easily and quickly compare prices and services of other carriers to FedEx’s. Due to the extremely competitive industry nature of its Freight and Trade Networks subsidiaries, time-volume contracts with large customers are the norm. Large buyers can easily negotiate rates and can play competitors against each other to obtain lower prices. Threats of Substitute Product or Services Although FedEx has differentiated itself with the reliability of its services coupled with powerful, user friendly IT services for tracking and account oversight, it still may not be enough. Fax machines, electronic communications such as EDI, and other technologies offer an alternative for delivering bills, statements, shared business data and personal messages. Bargaining Power of Suppliers Suppliers that are involved in this industry are: vehicle manufacturers, airplane manufacturers, fuel suppliers, labor, airports, and shipping materials manufacturers.

Opportunities FedEx has ensured that they have the best suppliers with a scorecard system where FedEx scores its suppliers to measure 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. 18

Threats FedEx’s tracking and ERP systems are very crucial to their business operations, thus consultants and contract programmers contributing to it are very important to the company. Although certain long-term IT projects can be outsourced abroad to save money, FedEx cannot bargain with suppliers for remedying crucial business functions that need immediate attention. Outsourcing activities such as aircraft/truck maintenance and acquiring or leasing the services of regional carriers where FedEx needs to expand operations, provide these suppliers a great amount of bargaining power. Rivalry among Competing Firms This is a strong force in this industry because the competitors use price cuts to compete, and the companies in this industry diversify and acquire other companies for strategic growth and synergy Possible strategic alliances and acquisitions by UPS and DHL in geographic markets where FedEx is present, pose a significant threat. A good example of this is in China where Sinotrans, the nation’s most prominent domestic airfreight carrier has started partnerships with UPS and DHL. Thus FedEx has to move up with new strategies & additional strategic alliances and acquisitions in Europe, South America, and Asia to tackle the fierce competition.

S.W.O.T. Analysis
Company Strengths: Globalize: Federal Express operates on a global scale. They operate in around 220 countries. They provide services that appeal to most of the world. They have such a large market in which to operate, and thus realize tremendous revenues. They can also achieve global economies of scale. Innovation: Federal Express took airplanes and trucks and used them differently than any other company before them. This is innovation. They have a first-mover advantage in name recognition because of this innovation. This has helped them to remain the industry leader since 1973. Technology and Communication: Federal Express uses and continues to search for new technology. They allow spending of around $1billion a year, 10% 19

of total revenues, for information technology. That commitment keeps customers from switching to other providers. Federal Express also has excellent communication with their customers. They use tracking devices on all shipments, and customers can find out where their shipment is through many different avenues including a user-friendly web site. First-Mover Advantage: Federal Express has had first-mover advantage in several areas.(1) Being a global express transportation company. (2) Advanced technology and communication throughout the company’s operations. (3) Incorporating smaller companies with similar operations under its belt to synergize and control more of the market. Company Weaknesses: Labor Disputes with Pilots: Federal Express pilots have formed the FedEx Pilots Association. This organization demanded changes in the pilots’ salaries, retirement benefits, and the fact that Federal Express outsourced some foreign flights instead of giving their own pilots the job. The pilots have a web site where news is posted and feelings are discussed. During a busy Christmas season in past, the pilots threatened to strike. Federal Express and the FedEx Pilots Association have developed a tentative agreement, which is published on the pilots’ web site. However, the pilots do not believe this agreement fully meets their expectations. This dispute is definitely an internal weakness for Federal Express, considering they have a huge pilot base, employed with them. Their operations would suffer if there were strikes. When UPS employees went on strike in 1997, Federal Express took the extra 800,000 shipments a day. If Federal Express employees went on strike, their competitors could gain an advantage. Rising Prices: Federal Express’ prices are above their competitors’. This can be a weakness if their customers do not perceive a difference between Federal Express and its competitors’ services. Running Subsidiaries Separately: FedEx has deliberately chosen to keep their companies separate. FedEx’s, CEO Frederick Smith states, "Simply layering the unique resource and operating requirements of a time-definite, global, expressdelivery network onto a day-definite, ground small-package network would surely result in diminished service quality and increased costs. Under the FEDEX umbrella, we will leverage our shared strengths while operating each delivery network independently, with each focused on its respective markets." Frederick Smith is confident this will be strength, instead of a weakness. Time will tell. Company Opportunities: Expansion Globally: Federal Express can continue to expand globally, including the other companies under FEDEX.

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Expansion Internally: Federal Express can continue to acquire more companies, and expand into new technologies or areas in their industry. Run Subsidiaries Together: If FEDEX doesn’t profit from running the subsidiaries separately, they can change to integrating their operations to achieve better synergies and economies of scale. Contracts with Large Corporations: To stay the industry leader, Federal Express should form contracts with companies who will add cost-saving or valueadding benefits to their services. Joint-Ventures: Federal Express can form joint ventures, such as already with Netscape and American Express, to enjoy the growth of integrating their customer bases. Expansion of e-commerce: Federal Express already has a major presence of shipping online. They should keep finding Internet companies to contract delivery of their products. Since the growth of e-commerce is rapid now, Federal Express could enjoy both profits and brand name recognition from this kind of expansion. Company Threats: Relations with Foreign Countries: Through Federal Express’ expansions globally, they are subject to laws and regulations of all foreign countries. There could be major problems in this area, stunting growth and raising costs. Already, Great Britain will not let Federal Express fly their own planes for shipments. Federal Express must either load their cargo on to British planes, or use ground transportation. This is very inefficient for Federal Express; however, it keeps competition out for British Air Transportation companies. Everywhere Federal Express goes, they are at risk for regulations that hinder their operations or efficiency. Economic and Political Conditions: Federal Express is subject to the entire world’s economic and political condition in the areas of fuel prices and supply, customer purchase of their services, and relations with foreign countries. As a global company, they are subject to much more risk than domestic companies.

Resource Analysis
MARKETING Strengths

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o High brand awareness—with the image of high-quality service, reliability and speed. o Emphasis on e-commerce and information technology. o Approximately 70% of FedEx shipments are automated. o FedEx.com—which gets about 4.5 million unique visitors a month, saving the company $25 million each month; it costs 4 cents to track a package online, compared with $2.14 when customer service gets involved. o MyFedEx.com—a customer portal that goes beyond simple tracking and tracing capabilities to offer personalized services for registered users. o Freight.FedEx.com—a fully integrated Website, which combines the resources of its operating company Web sites to create a one-stop LTL information source, including a bill of lading generator and email delivery notification, make freight shipping easier and bring customers closer to their own account information. o The full portfolio of offerings to meet various customer needs— FedEx’s service portfolio includes: express, ground, freight, logistics, supply chain, customs brokerage, trade facilitation and electronic commerce solutions. FedEx Express • Delivering packages, documents and freight to a large number of countries. • Overnight service virtually extends to the entire United States population. • Offers the most comprehensive international freight service in the industry. • Backed by a money-back guarantee, real-time tracking and advanced customs clearance. • Alliances with certain retailers for drop-off sites—providing customers the opportunity to drop off packages at locations in office buildings, shopping centers, corporate or industrial parks and outside U.S. Post Offices. FedEx Ground: FedEx Home Delivery • Offering unique, convenient, customized service, most of which are not offered by competitors, including extended evening delivery, Saturday delivery, and premium services, such as dayspecific, signature and appointment delivery. • Provides ground service to 100% of the United States population. • Overnight service to approximately 92% of the United States population. 22

Also provided to 100% of the Canadian population through a subsidiary.

FedEx Freight • Has a fully integrated Website, Freight.FedEx.com, which combines the resources of its operating company websites to create information source, including a bill of lading generator and e-mail delivery notification, make freight shipping easier and bring customers closer to their own account information. FedEx Trade Networks A leading provider of international trade services, offering services for international businesses. FedEx Services • To enhance its single-point-of-access strategy. • Much of marketing activities for FedEx Express and FedEx Ground are combined under FedEx Services to more effectively sell the entire portfolio of express, ground and e-commerce services. • Sells and markets the full portfolio of services offered by subsidiaries and provides customer-facing solutions that meet customer needs. Weaknesses • • • • • FedEx Express lags behind its competitor DHL in foreign markets. UPS is the largest provider of business and residential ground delivery services in North America, while FedEx Ground is the second. Service benefits not easily communicated; complexity of its offering mix may confuse customers. Little differentiation in service width and depth against competitive offerings. Similar price structures to the competitors’; giving no intensive for customers who seek low cost shipment.

OPERATIONS AND LOGISTICS Strengths • FedEx Ground in recent past, operated primarily with 15,300 owneroperated vehicles and 17,600 company-owned trailers. Having the trucks being owner-operated keeps asset costs low and is a common practice among carriers in the industry.

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• •

FedEx Express, Ground, and Services are ISO 9001 certified, which is currently “the most rigorous standard for Quality Management and Assurance.” Each of FedEx’s subsidiaries serves a separate and specific market sector where it has expertise, which results in “optimal service quality levels, reliability and profitability from each of the businesses.” This strategy is known as the “operate independently, compete collectively, manage collaboratively”

Weaknesses • • The air operations of FedEx are vulnerable to strikes from its pilots which belong to the Air Line Pilots Association, FedEx’s only union. FedEx Supply Chain Services is a subsidiary of FedEx Services, and not a distinct company such as other large companies has. Examples include: Maersk Logistics, and UPS Supply Chain Solutions.

HUMAN RESOURCES Strengths • • FedEx Express has over 52% of its employees being part-time, which allows for flexibility in scheduling and adjusting to variable periods of demand. All Part-time employees at FedEx are offered full benefits. FedEx Express has been able to reduce its workforce to meet flat growth rates in its domestic business through "early retirement incentives with enhanced pension and postretirement healthcare benefits" to certain employees aged 50+, and through voluntary cash severance incentives offered to eligible employees.

Weaknesses • The Airline Pilots Association contends that FedEx "often forces its pilots to put in as many hours as it can and gives them little say on flight schedules." This is a result of its flyers working primarily at nighttime and the growth of FedEx's international business. Some pilots are flying longer and "more tiring" flights. If a new agreement with the pilots' union isn't reached, there can be serious ramifications for short-term operations suspension.

INFORMATION SYSTEMS 24

Strengths Primary customer IS solutions include: • • • • • • FedEx Ship Manager Software, API, and server for pickup, cancellation, and tracking. FedEx Insight, a web-based system for enhanced level of shipment visibility. FedEx Global Trade Manager, which provides import/export forms, licensing requirements, country regulation/duty/embargo information. FedEx NetReturn API, which integrates with a company’s order/inventory management apps. FedEx EDI Electronic Invoice and Remittance, which sends invoice data electronically into the Accounts Payable systems of its clients. MyFedEx.com offers a customized portal solution for registered customers that offered personalized services, going “beyond simple tracking and tracing.”

Strategic Issues
COMPLICATED ORGINAZATIONAL STRUCTURE AND DIMINISHING COMPETITIVE ADVANTAGE: Each subsidiary company was to continue operating independently to provide wide range of business solutions. But for customers, benefits include easier mean of doing business with FedEx. New group structure has a major flaw as far as customer facilitation is concerned. There are still different teams of delivery and pickup staff for different operations. One person has to pickup package sent by Ground and another person has to pickup package sent by Express from the same company. Companies like UPS have one person for above stated operation. Also since FedEx was pioneers in the implementation of e-commerce and etracking system which was a competitive advantage for them, but with the change in time this competitive advantage becomes industry norm and other companies were also competing with FedEx in IT field.

FUEL PRICE FLUCTUATIONS: 25

Businesses like FedEx operate in a competitive pricing environment exacerbated by continuing high fuel prices. Their fuel surcharges have been sufficient to offset increased fuel prices, but the overall economy can’t be predicted if fuel costs significantly fluctuate from current levels and will impact on the overall economy. Volatility in fuel costs impact earnings because adjustments to fuel surcharges lag changes in actual fuel prices paid and also impact on delivery cost charged to consumers. For the same reason consumers are switching to substitutes by delivering through emails and fax. PILOT UNIONIZATION: The formation of Pilot’s union is itself a threat to FedEx. Demand for increment in salaries and retirement benefits have already been on their top agenda. Same issues have already been posted on website prepared by Pilot’s association. Strike by UPS employees in recent past provided extra shipment to FedEx. If 3500 FedEx pilot’s go on strike then it would result in colossal revenue loss to FedEx because much of the business would then be taken by its competitors.

Recommendations:
HANDLING STRUCTURAL ISSUES: o Run Subsidiaries Together: If FDX doesn’t profit from running the subsidiaries separately, they can change to integrating their operations to achieve better synergies and economies of scale. o Contracts with Large Corporations: To stay the industry leader, Federal Express should form contracts with companies who will add cost-saving or value-adding benefits to their services. o Joint-Ventures: Federal Express can form joint ventures, such as already with Netscape and American Express, to enjoy the growth of integrating their customer bases. HANDLING FUEL PRICES: 26

o Use of alternate energy: They should look for alternate energy sources for their transportation since there is a hike in fuel price and this trend seems to remain in future. FedEx should focus on solar power or bio-fuels as an alternative energy source. o Lowering cost by enhancing planes capacity: FedEx should increase the capacity of their planes in order to carry large number of packages which will drastically cover their cost of transportation. o Contracts with Oil Suppliers: Federal Express should developed contracts with oil suppliers to cover fluctuating fuel costs and volatility of supply. COMPENSATING EMPLOYEES AND PILOTS: Ensure that the employees, especially pilots, are well compensated. Since Federal Express is a service company, employees are critical to its success. Place pilots’ salaries at or above the industry average. They need to maintain a strong presence on the Internet, in case of a shakedown, and find ways to make their e-commerce user-friendly and profitable through its IT staff. They need to keep prices within 10 % of their competitor’s prices, or make sure that their customers view their service as worth the price.

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