Strategic Management of Value Chain - Essay Example

?Strategic Management Contents Task: Part 3 Summary of Analysis 3 Task: Part 2 4 Introduction 4 Background 5 Strategic Management of Value Chain 6 Horizontal and Vertical Integration Strategy 8 Customer Relationship Management Strategy of FedEx 10 Conclusion 11 Reference List 12 Task: Part 1 Summary of Analysis Essential management issues cannot be resolved through traditional strategies alone. The current business and economic environment is volatile. Resources are less and pressure is high. Resources have become more concentrated and management across firms are trying to find ways through which they can exploit the resources and capabilities to its best. Every organisation is subjected to factors which affect the functions and overall revenue generation of the firm. In the current report, FedEx Corporation has been analysed taking few of its major strategic management policies and their evaluation. FedEx is one of the biggest players in shipping and logistics industry. The company has always been a frontrunner providing differentiated services which have provided a competitive edge to the company. However, the company has seen various environmental changes and constant volatility in the business due to globalisation, financial crisis and increasing competitors. As a result of these strategic management have become more and more important for FedEx. The current report provides a critical analysis as well as evaluation of FedEx Corporation’s strategic development. The report has covered three principle strategies followed by the company. In the first part, the value chain analysis of Porter and their relevance in the practical field has been outlined. Further, the Company’s application of the value chain has been described in detail. Then the vertical and horizontal strategic management policies of the company have been discussed. This part has evaluated the diversification strategy of the company in order to gain expertise and control over its businesses. In the final part the customer relationship strategy has been discussed. FedEx has always focussed on providing differentiated services to its customers. The company’s foray into the services market and the strategies followed to crate differentiation and brand loyalties have been evaluated. Task: Part 2 Introduction Strategic management is characterised by a combination of analysis, action and decisions which a firm undertakes in order to sustain and create competitive advantage (Charles and Gareth, 2004). Each feature of a strategic management process consists of various action plans. The initial step of strategy management is analysis of goals, objectives and mission along with a thorough analysis of the external and internal environment. The decisions and subsequent actions are necessary steps for the implementation of the strategies. An analysis of strategies followed by an organization or firm helps in understanding its position with respect to its competitors as well as industry (Hutt and Speh, 2001). There are few strategies which give competitive advantage to some companies over others. In the current report FedEx Corporation and its strategic management policies have been evaluated. FedEx provides a wide range of shipment and transportation services. It is one of the largest logistic and shipping organizations in the world. Even though consumer goods marketing and business marketing are known to have similar principles and theories, they differ in their functionality and target market. The current report will throw light on the customer relationship management strategy as well as networking strategies of the organization. Business marketing can be described as an action to promote selling of products or services to other businesses, institutions, government etc. On the other hand, consumer goods marketing can make use of the services and products for consumptions, reselling or operational purpose. Looking at the present consumer as well as business markets, it can be said that in terms of market transactions volume, business markets are dominating. FedEx has always been pioneer in introducing technological innovations and creative changes in order to bring competitive advantage and superior’s performance. However, constant environmental changes due to constantly increasing competitors, financial crisis and globalization have forced the company to look beyond basic and traditional management practices (Berger, 2011). As a result of these changes, strategic management has become an important aspect for FedEx. The current report is divided into three parts. The first part will analyse the competitive environment of FedEx taking porter’s five forces of value chain as theoretical model. The model will provide a base for the strategy implementation. Practical competitive strategies followed by the company will be compared and strategically evaluated. Apart from the porter’s theory, an evaluation of capabilities and core competencies of the organisation will be discussed. The theories associated with capabilities and competencies and their application in the practical business will be discussed. The second part will describe the application of porter’s generic strategy applied by FedEx. This section will evaluate the strategic implementation of the theoretical model and the extent of success or failure of the application. In the third part, the customer relationship management and its strategic implementation by FedEx will be highlighted. The above three topic will cover the objective of the study, which is to evaluate the strategies and policies applied by the company and carry out strategic management analysis of the organisation. Background FedEx was established in the year 1973 as Federal Express Corporation (FedEx, 2013a). Headquartered in Memphis, the organisation is one of the largest shipping and logistics service providers in the world. The major logistics transported include express mail, post delivery, third party logistics and freight forwarding (FedEx, 2013b). The company is known for accommodating the largest and widest shipments range. The industry is oligopolistic and established competitors are few. In terms of industry life cycle, the shipping industry can be regarded as a mature industry. Some of the major competitors of FedEx are DHL, UPS and USPS. Each of these companies has customers who are brand loyal and who stick to the operational services provided by these companies. The cost of operations is significantly low which creates entry barriers into this sector. FedEx is a 40 year old firm and has established itself with sustainable resources and extensive infrastructure. Over time, the industry has seen many changes in the business functions, policies between the organisation and government and changing demands of the consumers (Pettigrew, Whittington and Thomas, 2006). FedEx have successfully established relationship with its customers through efficient customer relationship management and value chain services. The mission of the company thrives on ensuring high return on investments for its investors and customers, absolute customer satisfaction and continuous progress in developing long-lasting relationships with third parties, suppliers, employees and partners (FedEx, 2013c). There have been many changes in the shipping and logistics industry. The most common is the inclusion of internet. Advanced tracking devices and availability of internet connection have made the shipping process much faster, accurate and easy to monitor. Strategic Management of Value Chain Value chain analysis was first explained by Michael Porter. Value chain analysis can be described as a combination of internal and external activities of an organisation and their role in contributing to the competitive advantage of an organisation (Porter, 2008). Ever since FedEx has stepped into the business of logistics and shipping, it has been working out strategies it order to achieve growth and differentiation. It has transformed FedEx into a global supply chain management and logistics corporation. The company made investments in infrastructure systems and have been into acquisitions of many companies such as Calibre Systems, in order to increase its expertise of information and technology. During the initial years the company suffered lack of image as a result of its concentration into federal express business. Apart from that, competition in the express delivery and transportation business was intense which decreased the overall volume growth of the company. Even though the company was making action plans to include new business operations such as electronic commerce and e-tailing, the company was failing to establish itself into a successful supply chain and logistics operations. To recover from the above problems, the company opted for a strategic value chain management for the business. According to the value chain of Michael Porter, every organisation is an output of the activities which is performed in order to design, produce, market, deliver, supply and support its services and products. According to the standard value chain created by Michael Porter, there are nine strategic and relevant activities that create cost and value in any specific business. In case of FedEx, the first primary activity is inbound logistics in which the materials are brought into the business. FedEx introduced a unique system for management for tracking and it was known as COSMOS (Customer oriented services and management tracking network system. During the year in which FedEx installed this system, majority of the companies were using a centralised computer networking system based on real time working. The company included little extra shipping information in the system. These were information of transportation mode and about shipped goods. For example, whenever a customer gives an order in the company’s website or local address, the information directly goes to COSMOS which is the global tracking system of the company. The next primary activity as described by Porter in its value chain theory was operations. The operations part included conversion of raw materials into final product. Promotion of globalisation was enhanced with the advancement of information technology. In order to achieve major breakthrough in a logistics and transportation industry it is very important for the company to have a centralised information sharing system. The company should be able to share information among various departments and operations with the organisation as well as industry. This is important for reduction of costs, efficient information generation and operational efficiencies in improved customer services. In order to gain a competitive advantage in its operations, the company introduced a unique system known as DADS. It is a short form for digitally assisted dispatch system. It is a unique system in which every on-call pickup for customers is coordinated. Each moving van is provided with computer in order to manage their routes and time. The third business function in the value chain is outbound logistics which is shipping out of final products. During the initial years, the company mixed its logistics operations with a centralised warehouse bank. In order to increase the speed of service, a warehouse was built which took the dispatched orders from customers. The warehouse also got those orders which were to be dispatched to other places. Thus, FedEx provided a value added service to its customers apart from the fundamental transportation. So FedEx’s business on the logistics side magnified. After taking care of the outbound logistics, the company went for sales and marketing. It can be related to the marketing items sold by the company. The company launched its website in the year 1994. During that time, it was one of the few logistic firms providing a tracking service for customer orders in the online websites of the company. The customers were able to check the status of their packages online. Another breakthrough achieved by the company was online customer processing. This facility was available in the website of the company and soon after the launch more than 50000 users started following it. With the help of this facility customers were able to create their own private labels, request for courier and package pick-up (FedEx, 2013d). The customers were also allowed to send and receive e-main notifications about their shipments, everything from the website itself. Thus, through the above strategies in marketing function the company was able to achieve a competitive advantage and greater brand loyalty over others (Hakala and Vincze, 2012; Semeijn et al., 2005). The last functional process in the value chain is services. To create a differentiated and niche service, the company launched EuroOne Network collaborating in sixteen different countries. This network linked all the big cities with its primary hub Paris by road as well as by air. This was a very efficient step for creating a collaborative approach and helped in creating an elite service strategy for the company. To further elevate its service strategy, FedEx collaborated with Netscape and offer a host of pre-defined delivery services at the portal of Netscape. At that time, Netscape has 13 million customers making it an absolutely advantageous deal for FedEx. Once the primary activities were taken care, the company looked upon secondary activities. These were technology development, procurement, firm infrastructure and human resource development. These activities were handled by different departments within the organisation. In order to uplift the procurement process, the company implemented an electronic system for order conformation. Apart from that separate order packing and order picking system were used by the firm so that each and every order was taken and packed in front of the customers itself. This helped in increasing the customer confidence over the system as well as overall credentials of the company (Caruana, Money and Berthon, 2000). A separate payment and invoice management system was used which was undated at regular intervals. It can be noted that FedEx is the first logistics organisation, which introduced bar-code labelling in the field transportation industry. In the year 1986, the company introduced super tracker system which was used to confirm the details of the parcel information. From the above discussion it is clear that FedEx’s use of value chain theory was successful and the applications were able to generate overall growth and development for the company. Horizontal and Vertical Integration Strategy In order to understand the vertical and horizontal strategies followed by the company, it is necessary to know about the industries they are currently competing as well as their current position in the industry. At present, FedEx is composed of six independent and functional business units. These are FedEx Express, FedEx Freight, FedEx Ground, FedEx Trade Networks FedEx Custom Critical and FedEx Services. Each independent unit is competing against various sectors of the logistics and transportation industry. The objective behind independent functioning of the business is to provide tailor made and best fit services to the customers (Johnson, Whittington and Scholes, 2011). The Parent Company FedEx Corporation offers financial accountability and strategic leadership for its independent subsidiaries. The business model followed by the company can be summarized as independent operation and collective competition. Horizontal Integration is one of the latest strategic management principle added to the overall business. Horizontal integration can be described as the process of increasing the profitability of an organisation through various methods. These can be cost reduction, increasing the overall value of a service or product offering, increasing the overall power of negotiation or efficient management of industry rivalry. It can also be described as expansion of an organisation in the value chain occurring at the same level. FedEx has been carrying out horizontal integration strategy for many years. However, in the wake of rising fuel prices, economic down turn and unstable business environment, the company has been looking for horizontal strategy as an effective medium for expansion. Companies opt for acquisition strategies in order to increase their expertise and start new operations (Balmer, 2006). Flying Tiger was one of the few initial companies acquired by FedEx. However, the most recent acquisition done by the company was American Freightways. Previously the company had acquired Viking freight and with the acquisition of American Freightways, FedEx introduced a new subsidiary FedEx Freight under its umbrella. These two acquisitions helped in boosting the marketing and sales capabilities of the subsidiary. Both the acquired companies had a good reputation in the market and this helped in increasing diverse product portfolio The vertical integration strategy followed by FedEx was very aggressive. In response to the changing needs of the business as well as customers, the company started a number of vertical integrations. This provided an enormous infrastructure for the company such as delivery trucks, cargo planes, holding hubs giving it a competitive edge over others. The company faced an initial hiccup while maintaining huge and diverse operations under a single management. The major complications came up because of the time taking decisions and high amount of cluster in the management style. In order to come up with a solution, the company decided to diversify its business into several independent subsidiaries. Thus, the burden on the management was reduced, decision making was delegated to the independent functional units and overall business operations became much faster (Acemoglu et al., 2010). Customer Relationship Management Strategy of FedEx The aim of customer relationship management is to achieve permanently good and effective transactions with consumers. This is done by effective value based marketing, offering customised products and services, effective advertising and promotion strategies sending the right message through the right media (Parvatiyar and Sheth, 2000). However, to achieve these strategies, the company will have to set its priorities right. These priorities should include establishing work processes which are effective, attracting right customers, employee motivation and establishment of a continuous learning process within the organisation (Williams and Cutis, 2012). In order to build the overall brand image of FedEx, the organisation started a campaign with a business to business strategy. The three major steps included in the relationship marketing were establishment, development and maintenance. The objective behind the campaign was to widen the scope of B2B market of FedEx. The company takes orders from companies as well as independent customers. However, the volume of orders from corporate and business clients is much more. Thus the company focussed on building its relationship with the business market and its targets. In order to generate effective and innovative campaign, FedEx introduced 3D ?Globe facilities which became a major point of differentiation. In order to make its delivery services effective in overseas, the company hired special local managers. These managers had the expertise and understanding of the local culture, preferences and helped in avoiding any disruption due to cultural or regional differences. With the adoption of this strategy, the company saw a 300 percent jump in their exports. Technology has always been one of the major frontrunners for FedEx’s competitive edge. The company has always relied on advanced technology, modern research techniques and innovative services in order to provide customised and excellent services to its customers (Beri, 2007). FedEx’s investment in technology is heavy which enables the company in improvising their services and make them more valuable and reliable in front of their customers (Pitta, Franzak and Fowler, 2006). The FedEx Institute of Technology is exclusively devoted for the research and development of innovative designs and technology. The company has always thrived by differentiating itself from its competitors. In terms of pricing, FedEx operates as a competitive based pricing strategy. It is placed higher than the local and unbranded delivery services and at par with the major companies in the transportation industry. The differentiation strategy can also be seen in the value based services offered by the company (Buttle, 2004). The purpose is to establish a well build customer base which can differentiate the superior services provided by the company. While most of the big players in the transportation industry are capable of establishing fast deliveries, FedEx has been considered as the most consumer-friendly. Few of the special services provided by FedEx include money back guarantee, picking up packages even from the consumer’s residence etc. Thus, for establishing an effective and long lasting customer relationship management, the company has successfully made and implemented long term strategies and action plans. Conclusion In the overview of FedEx, it was found out that the company has focussed heavily on creating an international infrastructure and effective strategic management policies to counter its competitors. In order to do this, it is very important to understand the fundamental theories of strategic management as well as their applicability in the current business scenario. So far, FedEx boasts of the largest air fleet in its industry, and has shipments going to more regions than its major competitors. With the development and growth of economies in Eastern Europe, East Asia, and South and North American continents, Federal Express can certainly expect to achieve global success. Reference List Acemoglu, D., Aghion, P., Griffith, R. and Zilibotti, F., 2010. Vertical integration and technology: Theory and evidence. Journal of the European Economic Association, 8(5), pp. 989 – 1033. Balmer, J. M. T., 2006. Alliance brands: Building corporate brands through strategic alliances. Emerald Management Reviews, 13(4), pp. 242-254. Berger, A., 2011. Case study – FedEx corporation: Strategic management. Munich: GRIN Verlag. Beri, G.C., 2007. Marketing research. New Delhi: Tata McGraw-Hill Education. 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