United Parcel Service (UPS) Strategic Management 1

United Parcel Service (UPS) Strategic Management

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 United Parcel Service (UPS) Strategic Management 2

United Parcel Service (UPS) Strategic Management

Introduction

In the world of business today, the role of a chief strategy officer (CSO) has gained

popularity and importance as well. Indeed, it is very rare to find a successful organization that

does not have a CSO in the modern era as business evolution has made it necessary to have this

position (Pidun 2019 p. 255). As a CSO for United Parcel Service (UPS), I will be responsible

for assisting the CEO with executing, developing, communicating, as well as sustaining the

company’s corporate strategic initiatives. UPS is one of the largest delivery firms in the world

and the leading providers of other related services such as logistics services and specialized

transportation. It was founded initially as a delivery service as well as a private messenger in the

Seattle, Washington area in 1907 (LABIYI 2018 n. p). Today, its headquarters are located in

Atlanta, Georgia, in the United States. For almost a century, the company has expanded to

become a global corporation from a small and mere regional parcel delivery. The firm focuses on

movement of information, goods, and funds, as well as seeking to synchronize the world of

business and commerce. The primary business of UPS is the time-definite delivery of documents

and packages throughout the United States and the rest of the world. Notably, the company

provides freight services and air delivery.

Additionally, UPS has developed a comprehensive and recognized portfolio as well as

has established a global transportation infrastructure that guarantees delivery as well as

supporting these services with the advanced technology and innovation (Smith et al. 2018 n. p).

It has provided major businesses around the world with suitable and reliable integrated supply

chain solutions. The company’s vision is to be one of the most recognized shipping brands in the

world. As such, the firm has always believed that by laying a foundation for an enterprise, it can
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become one of the leading businesses in the modern world and most importantly have a great

value in the future. This goal can be realized when a strong company is built one that is strong in

the modern era. Its mission seeks to grow its global business by serving customers’ logistics

needs, offering value, and excellence in all that it does. It aims to lead by example as a caring,

responsible, and sustainable company by making difference in the communities it serves. The

company strives to become the most dependable and timely freight and parcel forwarding

delivery service globally. The company is able to grow profitably thanks to implementation of

the latest tracking technology that enables the company to provide customers more accurate and

dependable delivery times. The company’s goal is to place great emphasize on its workers. Some

of its goals are to grow in the emerging markets. This goal has seen it place competitive

marketing strategies in order to insure generation of maximum revenue. Therefore, it plans on

establishing organizational infrastructure and building company presence in key emerging

markets such as Russia, India, and Brazil among others to minimize the cost of establishment

compared to generated revenue from these markets.

Financial Performance

In recent years, the company announced that it was planning to offer an initial public

offering (IPO) after being a private company for more than ninety years. As a result, the

company would first analyze sustainability of its current performance and a business strategy.

Then the company would look into key factors in order to estimate its market capitalization value

by employing FedEx and best in breed premiums. Eventually, the firm should create a market

capitalization between $17 billion and $30 billion (Schill and Craddock, The Battle for Value,

2016 n. p). Today, UPS is the largest delivery of parcel in the world. The company also helps its

customers with logistics, supply chain management, as well as financial services. The company’s
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carefully designed network of automobiles, hubs, and sorting facilities combined with

information technology system have allowed it to pick more than 13 million packages every day

from at least 2 million addresses for delivery. Financially, the company has continued performing

better than FedEx. Between 1997 and 1999, the company reported net profit margins of 6.5% on

average as well as return on investment (ROE) of 25.2% (Bruner, Lipson, and Carr 2017 n. p).

Since then, the profit margins have continued to increase thanks to UPS’ reputation in the

industry. Today, UPS has 421 trucking and courier services excluding air. Its current revenues are

in the region of $74.1 billion and have assets worth $57.9 billion (Bruner, Lipson, and Carr 2017

n. p).

Problem Statement

Following the advancement of technology as well as innovation, UPS has continued

facing different challenges as more people have shifted to technology-backed channels of

sending information and communication including cloud computing that allows users to store

and access large quantities of data. Therefore, it is the high time that the company needs to

rethink about more business ventures as well as enhancing its current businesses by embracing

the advancing technology.

United Parcel Service, Inc. PESTEL Analysis (External Environmental)

PESTEL analysis is one of the most used tools in managing modern business. It refers to

a strategic tool used to analyze a firm’s macro ore external environment. It stands for - Political,

Economic, Social, Technological, Environmental and Legal factors which impact a company’s

external environment (Dhir 2019 n. p). According to Kang and Huh (2017 p. 5), a change in

these factors may directly impact UPS as well as other players in freight service and air delivery.

Political Factors
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Political factors are major opportunities that can affect the performance of a company.

They have a significant role in determining various aspects that have the potential of impacting

long term profitability of a given company in a certain market or country. As such, UPS exposes

itself to different types of political system and political environment risks since it operates in a

number of countries and territories (Dhir 2019 n. p). Therefore, to achieve success in such a

dynamic industry, the company needs to diversify these systematic risks across various countries

and political environment. Some of the areas that UPS need to analyze include risk of military

invasion, political stability, favored trading partners, incentives and taxation rates, and level of

corruption among others.

Economic Factors

Additionally, economic factors off the company a wide range of opportunities. These

refers to factors of macro environment such as interest rate, inflation rate, rate of foreign

exchange, savings rate, and economy cycle that play a significant role in determining aggregate

investment and aggregate demand in an economy. On the other hand, micro environment factors

like competition norms impact a firm’s competitive advantages. Therefore, UPS may use

economic factor in a country it intends to venture such as inflation, growth rate, and economic

indicators of the industry such as consumer spending and the growth rate of Air Delivery and

Freight Service to forecast the growth trajectory (Dhir 2019 n. p). Other aspects that the

company should consider include exchange rate, government intervention, economic growth

rate, and productivity and labor costs among others.

Social Factors

Social factors are opportunities for the company. The way of doing things and culture of a

society impacts the culture of a firm in an environment. Attitudes and shared beliefs of a
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population play a significant role in how the company’s marketers will understand the customers

of the market they intend to venture as well as how they design their marketing messages for

delivery (Dhir 2019 n. p). Some of the social factors that the company’s leadership needs to

analyze include leisure interest, culture, entrepreneurial spirit, attitudes, and skill and

demographics level of the population.

Technology Factors

Technology has dominated the modern world. According to studies, it has continued

influencing organizations and has improved both efficiency and productivity. Recent studies have

shown that the rapid advancement in technology is disrupting various industries across the world.

For instance, over the last decade, the transportation industry has seen rapid transformation thus

forcing players in this industry to cope with the changes. For example, players like Uber are now

dominating the taxi industry (Dhir 2019 n. p). Besides, the car industry is rapidly shifting

towards automation as technology companies such as Tesla and Google continue with revolution

of this industry. Therefore, UPS should critically analyze the technology and more importantly

the speed the technology is disrupting the industry.

Environmental Factors

Through management of the environmental factors, UPS can dominate in the industry for

long. Environment provides opportunities for companies to dominate. Studies have shown that

different markets have different environmental standards or norms that can impact a firm’s

profitability. Besides, a country can have different liability laws and environmental laws in

different states. For instance, some countries give huge tax breaks to companies that make efforts

in the renewable sector. UPS should evaluate the environment standards carefully before entering

new markets. Some factors that the firm should consider include recycling, weather, waste
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management, environmental laws, and climate change among others. On the other hand, the jets

numbers nay affect the environment. Notably, they increase carbon emission which increases

environmental pollution.

Legal Factors

Legislation is a major opportunity that UPS can benefit from. The legal institutions and

frameworks are not robust enough to protect a firm’s intellectual property rights in a number of

countries. Therefore, it is important for the firm to evaluate the country carefully before entering

the market as lack of this may lead to theft of the firm’s secret sauce. UPS needs to consider the

following legal factors; discrimination law, employment law, ecommerce and consumer

protection, intellectual/patents property law and copyright and anti-trust law in the delivery

industry.

UPS Value Chain Analysis (Internal Environment)

UPS is the leading package delivery as well as provider of supply chain management

solution located in the US. The value chain model was first introduced by Michael E. Porter from

Harvard Business School. According to Porter, the model includes all activities that add value to

a firm’s product beginning from procurement to production, sales, marketing, and customer

service. He postulates that companies are capable of achieving superior results when they

optimize the value chain. Some of the results include wastage minimization, operational

efficiency, as well as reducing operational expenses. In addition, it helps firms generate new

competitive advantage sources. According to Zhao, Xiu, and Yu (2021 n. p), the value chain

model has two types of activities; primary activities and support activities. The former is directly

concerned with the creation of the services or products while the latter is related to the primary
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activities and more importantly improves the efficiency and effectiveness of the primary

processes.

UPS value chain includes both the secondary and primary activities. The primary

activities refer to the main activities in the model and are concerned directly with the creation of

services or products. The company has internal support programs for its workers. There is

adequate assistance with mental health, tuition, and other issues that tend to hinder the

performance and wellbeing of employees. In the recent past, the company had issues with the

union employees and the management. This was contributed by the company’s demands that

included forcing employees to work when the union is on strike (Stodick and Deckert 2019 p.

233). The company has been aware of these issues and continues addressing situations that arise

within. The firm’s value chain has numerous positive variables that include being run by an

administrative employees and management that handle all functions within the company.

Secondly, an active department of human resource that recruits workers needed to maintain its

global operations. Thirdly, the union labor that helps in handling the delivery and sorting of

packages.

In addition, its value chain comprises of the IT department that plays an important role of

handling all things that deal with technology such as computers, phones, and the tracking system.

The procurement or purchasing department deals with all purchases from the departments as well

as tracks all of the firm’s credit card purchases. In addition, outbound and inbound logistics deal

with all package data and customer data. Moreover, new openings have increased efficiency of

the company and have allowed it to reach more diverse customers (Stodick and Deckert 2019 p.

233). On the same note, the company has experienced workers who provide it with competitive

advantages over its rivals. In addition, the workers are able to deal with the diverse nature of
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different customers. The company has not been over reliant on few customers. As discussed

above the company has a wider range of customers from all over the world. This increases its

revenues as well as trust across different places. Finally, operations are the last values in the

company’s value chain and deal with the physical sorting of all packages as well as all customer

service.

UPS Porter 5 Forces Analysis

Threats of New Entrants

New entrants in Freight Services and Air Delivery bring new ways of doing things and

new innovations that put pressure on UPS. Some of the pressures that the company suffers

include reducing cost, lowering pricing strategy, as well as provision of new value propositions

to the clients and customers. Therefore, the company has to create effective barriers in order to

safeguard its competitive edge while at the same time managing these challenges (Baxter 2019 p.

6). The firm can tackle these threats by building economies of scale to reduce or lower the fixed

cost per unit. Additionally, the company can come up with new innovating services and products.

Finally, the company should spend money and time on research and building capacities.

Bargaining Power of Suppliers

Reports have shown that approximately all firms in this industry purchase their raw

materials from many suppliers. According to Baxter (2019 p. 6), suppliers in a dominant position

often decrease the margins UPS can earn in a given market. As such, powerful suppliers in the

industry employ their negotiation power to get higher prices from the companies in this industry.

Ultimately, the effect of higher bargaining power of the supplier lowers the overall profitability

of the company. UPS can tackle bargaining power if the suppliers by creating an efficient supply
 United Parcel Service (UPS) Strategic Management 10

chain that has several suppliers. Secondly, the firm should develop suppliers who are dedicated

and whose businesses rely on the company.

Bargaining Power of Buyers

Often, buyers demand a lot. For instance, they want to get the best service or product at a

minimum price possible. Therefore, this put pressure to companies like UPS and affects their

profitability in the long run. The more powerful and smaller the company’s customer base is, the

higher is the customers’ bargaining power as well as ability to push the company to keep giving

offers and discounts. The company can tackle this challenge by building a large customer base.

Secondly, the company should create new products to reduce the defection of current customers.

Finally, the firm should innovate new products rapidly.

Threats of Substitute Services or Products

When a new service or products meets the needs of a similar customer in different ways,

a firm or industry profitability decreases. UPS faces such challenges due to innovative and easier

ways to use services. For instance, giant companies such as Google are substituting services to

storage hardware drives through Google Drive and Dropbox. The threat of a substitute service or

product becomes higher when it offers a unique value proposition different from what the firm is

offering. UPS can tackle this challenge by increasing the customers’ switching costs. Besides,

becoming service oriented over product oriented. Finally, understand the needs of its customers.

Competitors

When the rivalry between the existing players becomes intense, prices are driven down

thus decreasing the industry’s overall profitability. UPS operates in one of the most competitive

industries, Air Delivery and Freight Services. Thus, the company’s overall profitability is

affected by this completion. The company should tackle this issue by creating a sustainable
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differentiation, collaborating with competitors in order to increase the size of the market, and

building scale to compete better.

UPS SWOT Analysis

Strengths

Strengths refer to what a business does best in its gamut’s operations that can give it a

competitive advantage over its competitors. UPS strengths include:

Technology: The firm is a major spender on technology. According to LABIYI (2018 n. p), it

invests more than $1 billion on technology every year through its 4700 employees. The major

areas in technology are customer relationship management, supply chain management, and order

tracking delivery.

Network: Reports have shown that the firm has reached out most of corners around the world

thanks to its widespread network as well as subsidiaries that help it become the largest logistics

company in the world (Rajendran 2020 p. 3).

Streamlining of processes: The Company continues laying attention on streamlining all the

processes aimed at enhancing customer service. According to Rajendran (2020 p. 4), these

processes are continuously re-engineered based on the changing behavior of customers, logistics,

and technology trends. These processes include customer engagement, order tracking, invoicing,

and customs clearance.

Higher customer engagement: The firm customers with facilities avail all services which they

provide electronically (Rajendran 2020 p. 7). These online platforms enable the customers to

interact with the customer service executive and track the order.

Weaknesses
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Weaknesses refer to areas where a brand or business needs to improve in order to remain

competitive. The major UPS weaknesses include:

Poor revenue management: The firm’s revenues have continued to dip as more and more

customers keep spending on online shopping (Rajendran 2020 p. 11). The company’s investment

in the infrastructure had to improve and its capital spending had to be increased. Poor revenue

management continues being a major weakness facing the company.

FedEx: FedEx has always been the biggest competition for UPS. FedEx has currently around

49% market share while UPS has only 36% in the express market (Rajendran 2020 p. 13). Thus,

the company has made efforts to compete with FedEx in order to secure a higher market share

that will allow it to divert their interest from other areas.

Opportunities

Opportunities are the avenues in the environment surrounding a company where it can

capitalize in order to increase its revenues and returns. UPS opportunities include:

New and emerging ideas: Studies have shown that logistics remains a very innovative market.

Therefore, the sector has seen a number of emerging trends such as crowdsourcing, outsourcing,

3D printing, as well as RFID. These emerging areas may help UPS create a scope for new

markets.

Threats

Threats refer to factors in the environment that may be detrimental to the growth and

expansion of the business. Some of the threats that the company face include:

Competition: UPS faces a number of competitions that reduce both its market share and

revenue. The major competitors of UPS are Gati, FedEx, Canada Post, DHL, and United States

Postal Services.
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Shift in customer desires: As technology enables more and cheaper and easier ways to deliver

messages, the company is more likely to keep losing customers besides increased competition.

Course of Actions

UPS has developed a comprehensive portfolio and established a global transportation

infrastructure for guaranteed delivery as well as supporting these services with advance

technology. This has enabled the company to not only dominate in this industry but also remain

in business for the longest time possible. Moreover, it has provided major companies around the

world with integrated supply chain solution. It aims to lead by example as a caring, responsible,

and sustainable company by making difference in the communities it serves. The company

strives to become the most dependable and timely freight and parcel forwarding delivery service

globally.

The company should consider improving on a number of factors in order to compete with

other players and continue increasing its revenues. For example, as discussed through the

analysis, the company will likely struggle for customers as the industry continues with

revolution. To overcome this, the company may decide to venture in other businesses especially

those that are closely related to its current operations. On this note, the company may venture in

banking business across all areas of its operational. Banking business relates closely to delivery

as the company would use its current staff and assets to enhance the business. By investing in

this sector, the company will continue serving its customers in diversified ways as well as ensure

that it enjoy increased revenue.

Besides, the company can invest in technology and come up with ways to better its

operations including using green energy in its deliveries. In this case, the company can partner

with automobiles firms such as Tesla to replace its current fleet that emit carbon dioxide into the
 United Parcel Service (UPS) Strategic Management 14

atmosphere. As such, the company may decide to replace its trucks and other vehicles with

electrical cars. By doing this, the company would be aligning with most countries’ visions of

ensuring green energy as well as reduce the costs of transportation. Moreover, UPS can identify

trends that are game changing early on as well as respond swiftly to exploit the emerging

markets and opportunities. Through complete understanding of these forces, the company can

shape them in its favor. UPS value chain includes both the secondary and primary activities. The

primary activities refer to the main activities in the model and are concerned directly with the

creation of services or products. The company has internal support programs for its workers.

Finally, new and emerging ideas provide the company with an opportunity to increase its

operations as well as boost revenue. Logistics remains a very innovative market. Therefore, the

sector has seen a number of emerging trends such as crowdsourcing, outsourcing, 3D printing, as

well as RFID. These emerging areas may help UPS create a scope for new markets.
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FedEx. Journal of Management Cases, p.5.

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