United Parcel Service Five Forces of Competition Analysis - Case Study Example

? Capstone Capstone Introduction United Parcel service (UPS) was founded in the year 1907 in the United s as a messenger company (UPS, 2013). UPS is headquartered in Atlanta, Georgia. Mr. D. Scott Davis is the current Chief Executive officer of the company. Currently, United Parcel service (UPS) is the largest global package company and a reputable provider of specialized transport and logistics services. The company enables the delivery of information, goods and capital to more than 200 countries worldwide. The company operations are segmented in to three; US domestic package, International package and supply chain and freight (UPS, 2013). The supply chain and freight operations offers freight forwarding and logistics services, customs brokerage, supply chain design and management and consulting services to more than 195 countries across the world. Accordingly, UPS has diversified its services to billing technologies, payment solutions and risk mitigation services. The company operates more than 100,000 fleets of package delivery cars, tractors and more than 30,000 containers in airfreight transport. The competitors are United States Postal service, DHL international and FedEx (Magretta 2012). UPS mission, vision, and primary stakeholders UPS mission statement seeks to grow business through meeting the logistic needs of the clients and offering excellent services in all business operations. The company aims at maintaining strong financial position thus offering long-term impressive returns to the shareowners (Henry, 2008). Accordingly, the company is geared at inspiring its people and business partners through offering opportunities for personal growth and development. In addition, it is the aspiration of the company to lead by example in being responsible and sustainable company in making the difference in communities through social responsibility initiatives. Some of the UPS’s shared beliefs include integrity in its operations, innovation and creativity and teamwork. Accordingly, UPS is committed to quality and efficiency in the pursuit of excellence and safety of its people and business partners (Magretta 2012). The company is committed to continued environmental stewardship and social responsibility initiatives. UPS has a slogan that asserts; “what can Brown do for you” thus emphasizing that the company is capable of providing services to everyone across the world and to any address. UPS five forces of competition analysis Michael Porter’s five forces of competition can be used to analyze the competitive strength and position of UPS in the market (Faarup, 2010). The first force is the threat of new entrants in to the market. In this case, the threat of new entrants in the global package delivery business is low due to the large economies of scale of the existing players such as DHL international, UPS and United States Postal service. In addition, large capital outlay is needed to establish operations through purchase of aircrafts, lorries, cars and hiring of personnel. Trade tariffs and international regulations have also made it difficult for other companies to enter in to the market. The second force of competition is the bargaining power of suppliers such as providers of fuel, business partners and trade unions. In this case, the bargaining power of suppliers is high due to demand for better salaries, rising fuel costs and providers of envelops and boxes who demand better prices for their services (Magretta 2012). The third force of competition is the bargaining power of buyers. In this case, the buyers have moderate bargaining power due to high brand recognition, high brand loyalty and high switching costs (Henry, 2008). The fourth competitive force is the threat of substitutes in the global market. The threat of substitutes in the market is low since no real substitutes of airfreight and the company has diversified its services to offer integrated global shipping network (Faarup, 2010). In addition, UPS has controlled the threat of substitutes through enhancing service value through additional service attributes to personalized cargo tracking and overnight parcel delivery within certain geographical areas. The last force of completion is the degree of rivalry in the industry (Faarup, 2010). Although there are other dominant parcel delivery companies such as DHL and TNT that offer similar services, the degree of rivalry is moderate due to the integrated global infrastructure of UPS. The company delivers double the number of parcels handled by competitors in urgent delivery and has a more reliable e-commerce system that handles billing solutions and global risk mitigation. In this case, the industry environment is conducive for UPS operations (Bidgoli, 2010). S.W.O.T analysis Strengths, weaknesses, opportunities and threats (SWOT) analysis is a useful tool in identifying the competitive strengths, weaknesses, opportunities and threats that face an organization in the market. The strengths and weaknesses focus on the internal environment while the opportunities and threats exist in the external environment. Some of the strengths of UPS include strong brand names, good reputation in the market and high access to parcel distribution networks (Faarup, 2010). The company has invested in less-than truckload and retail operations, express delivery of ground packages and integrated billing technologies. However, UPS faces several weaknesses that may negatively affect its competitive edge and profitability. Some of the weaknesses include high reliance on the domestic US market, increasing energy costs, high costs of delivering less-than truckload packages and high maintenance costs of the trucks. UPS has numerous opportunities that it can exploit to increase competitiveness, market presence and profitability in the global market (Magretta 2012). UPS must continue investing in China market has evidenced by the continued establishment of operations in numerous cities in China. Accordingly, UPS can increase investments in data communications infrastructure in order to gain competitive edge in the increasing electronic communication market segment, IT networks and databases (Faarup, 2010). UPS faces several threats in the external environment such as risk of disruption of operations due to industrial action of unionized staff (Henry, 2008). The company must sign collective bargaining agreements with its staff in order to prevent any disruption of operations that may ruin its reputation in the future. The company is also facing considerable competition due to the recent high growth of competitors such as TNT, FedEx and DHL. The rise in oil prices and increase in global terror activities may increase the shipping costs. Another threat facing the company is the recent technological innovations that have led to high demand of online data communication. Strategy to capitalize on strengths and opportunities, and minimize weaknesses and threats UPS can use a differentiation strategy in order to capitalize on strengths and opportunities and minimize the weaknesses and threats (Henry, 2008). The differentiation strategy must aim at creating more customer value, transforming the business processes and grow the online billing technologies. The company must be capable of offering industry-leading data communication services, integrated logistics infrastructure and high-speed package routing system (Henry, 2008). The company must expand its consulting services in order to tap in the opportunities offered by increase in global trade and increase in the number of multinational companies willing to outsource some of the supply chain services such as transport and export procedures (Cadle, Paul & Yeates, 2010). In addition, UPS must enhance its security and hedge against further increase in fuel costs. The company must utilize its sound financial position to venture in attractive markets such as China and other global emerging markets in need of logistic services. The company must also offer better employment benefits and terms of service in order to motivate its staff (Magretta 2012). Types of strategies UPS can use to maximize competitiveness and profitability The first strategy that UPS can use to maximize competitiveness and profitability is the differentiation strategy that aims at attaining higher service levels, effective parcel distribution network, high use of technology, additional features and functionalities of the services and focused relationships with existing customers (Bidgoli, 2010). In this case, UPS must implement strong marketing campaigns, ensure high co-operation among the business segments and commit resources to research and development activities (Cadle, Paul & Yeates, 2010). The main aims of differentiation strategy is to attain higher competitiveness and profitability through added value, high brand loyalty, timely services, high market reputation and high switching costs. Accordingly, UPS will foster use of product innovation and intense application of modern technologies in delivering unique services to customers (Magretta 2012). The second strategy that UPS can use to maximize competitiveness and profitability is cost leadership strategy. The company must be able to offer services at the lowest cost and costs must be minimized at every stage of the value chain. In this case, UPS will be capable of offering its services at the average industry prices thus earning a higher profit margin that the rivals in the industry. The company must ensure optimum use of technology in reducing costs and strengthen the relationships with suppliers (Bidgoli, 2010). The company can also redesign the supply chains and ensure cost linkages in related business segments. Some unique method that UPS can utilize in implementing the cost leadership strategy include improving process efficiencies and gaining a large access to high volumes of sources of materials required to establish the efficient parcel distribution channels. Restructuring the organization, low-cost parcel distribution network and sustained capital investments in technology will ultimately lead to low cost leadership in the industry thus improving the competitiveness (Henry, 2008). Communication plan of the strategies to all stakeholders The management of UPS must understand the interests and concerns of different stakeholders before communicating the strategy that will enhance competitiveness and profitability (Cadle, Paul & Yeates, 2010). The next step will be to identify key messages and channels that will be used to communicating the proposed changes to different stakeholders. Some methods of communication include annual general meetings, conferences, newsletters, emails and press addresses (Magretta 2012). Accordingly, the management must outline the shortcomings of current strategy and create urgency for change in strategy through outlining how the company will be capable of attaining high market presence, higher sales revenues, competitive advantage and profitability after implementation of the proposed strategy. The management must identify the impact of the strategy on mission and vision of the company and outline new goals that are strategic, measurable, attainable, relevant and time-specific (Henry, 2008). Corporate governance mechanisms at controlling managerial actions UPS utilizes several corporate governance mechanisms in controlling managerial actions. One of such mechanisms is board compensation whereby a considerable portion is provided in forms of stock options, company stock and other forms of equity (Cadle, Paul & Yeates, 2010). A compensation committee that recommends changes in the board of directors’ compensation and such compensation is provided in a manner that ensures directors’ independence (Securities and Exchange Commission 2013). The other corporate governance mechanism is a policy on contributions to political activities in the country. The UPS policy has complied with federal laws and regulations on use of corporate resources in funding federal elections including offices supplies. Each employee is entitled to independent and voluntary participation in political activities and employees who inadvertently use company resources in political activities must notify the company and reimburse a fair market value of service or item provided to the political campaign. The company also discloses all federal lobbying efforts and contributions to federal and state expenditures (Securities and Exchange Commission 2013). Effectiveness of leadership and recommendations for improvement UPS has transformational and creative leaders who have steered the company to great success in the market. The management committee comprises of 10 able leaders, led by D. Scott Davis who is the Chief Executive officer, David Abney, the Chief Operating officer, and Jim Barber, the President of UPS international. The leadership style of the management committed has demonstrated commitment to shared values, optimism in the company vision and creativity in decision-making. However, UPS leadership style must include elements of motivation and idealized influence in order to ensure employees commit to the attainment of the shared organizational goals. Secondly, the leadership must provide for individualized consideration through encouraging supportive working relationships and addressing the unique needs of each employee in the organization. Efforts in being an ethical corporate citizen UPS is actively engaged in becoming a ethical corporate citizen. The company established UPS foundation in 1951 and spends more than 1.4 million hours and $ 100 million in community initiatives. The company is committed to values of environment and volunteerism, diversity and community safety. UPS has a global volunteer month every month of October whereby staff engage in renovating shelters, building schools and logistics emergency training. The volunteers spend an estimated 309,000 volunteer hours in charity work in 2012. Some UPS philanthropy programs include helping increase education opportunities for minorities such as the George D. Smith scholarship, James, E Casey scholarship and contributions to partners’ funds such as Hispanic scholarship fund, United Negro college fund and Organization of Chinese Americans. Other social responsibility programs aim at encouraging road safety, carbon reduction, environmental research and disaster preparedness (Henry, 2008). Conclusion UPS mission is committed towards growing business through meeting the logistic needs of the clients. The company has attained high brand recognition and customer loyalty. The company is committed to ethical business operations through environmental conservation, volunteerism, charity contributions and encouragement of transport safety. Accordingly, the company has installed an integrated logistic infrastructure in the billing technologies, supply chain design and freight forwarding services. UPS must implement a differentiation strategy in order to attain competitiveness and profitability in the industry. The company must offer value added services through use of modern data communication technologies and custom clearance services. In addition, UPS must prevent the possibility of employee strikes and hedge against the increase in oil prices. The company must pursue market development in emerging markets like China in order to remain ahead of the competitors such as TNT and DHL. References: Bidgoli, H. (2010). The handbook of technology management. New Jersey: John Wiley & Sons. Cadle, J., Paul, D & Yeates, D. (2010). Business analysis. London: British Computer society. Faarup, P.K. (2010). The marketing framework. Aarhus: Academica. Henry, A. (2008). Understanding strategic management. Oxford: Oxford University Press. Magretta, J. (2012). Understanding Michael Porter: the essential guide to competition and strategy. Boston: Harvard Business review press. Securities and Exchange Commission. (2013). “Company fillings”, Retrieved on 15th August, 2013 from http://www.sec.gov/edgar.shtml. UPS (2013). ‘UPS in the marketplace, workplace, environment and community’, UPS Corporate responsibility. Retrieved on 15th, August, 2013 from http://www.responsibility.ups.com/Sustainability/Highlights. Read More