Analysis of Fedexs Strategic Capabilities - Case Study Example

Table of Content Table of Content 2 Table of Content 3 2.Introduction and Company background of Fedex 3 3.Measurement of Fedex’s success 6 3.1Reasons underpinning Fedex’s success 6 4.Analysis of Fedex’s Strategic Capabilities 8 4.1 Analysis using VRIN Framework 8 4.2 Analysis using the Value Chain Framework 9 5.Detailed analysis on Fedex’s international marketing strategy 10 6.Leadership in Fedex to its success 12 7.Sustainability and continuation of Fedex’s success 13 7.1 Factors that may hindering Fedex’s success 13 7.2 Suggestion and Conclusion 13 8.References 14 1. Table of Content 2. Introduction and Company background of Fedex Fedex is a quite strong competitor in the global courier, express and parcel industry. The company was established in ‘1971 in Little Rock, US’ (Fedex, Organizational Website, About Fedex, History). Still, the firm has been in the market unofficially since 1913 when C.J. Tower & Sons, currently part of Fedex, was established (Fedex, Organizational Website, About Fedex, History). Today, the employees of the firm are estimated to 300,000, in total, while the firm’s offices are located in about 220 worldwide (Fedex, Organizational Website, Overview and facts). For Fedex addressing the interests of its stakeholders is vital: emphasis is given not only to the interests of shareholders but also to those of customers and employees (Fedex, Organizational Website, Mission/Strategy/Values). The company aims to achieve its mission, as described above, by employing a three-part strategy: operating as an integrated brand, not been depended on a particular network/ alliance, enforcing collaboration in the management of stakeholders’ relations (Fedex, Organizational Website, Mission/Strategy/Values). The success of the company in the market is verified by its financial performance, as presented in its financial statements. In addition, the rewards given to the company in regard to various aspects of its operations are also indicators of the firm’s success in the international market. Figure 1 – Total Revenue Growth for Fedex, from 2007 to 2013, in % (source: Fedex, organizational website, Investors relations, Performance at a glance) According to the graph in Figure 1 above, the revenue of Fedex is not standardized; moreover, the performance of the firm seems to be vulnerable to market turbulences. For example, in 2009 and 2010 the firm’s revenues were declined by 6.5% and 2.1% accordingly (Figure 1); this phenomenon is probably a result of the severe recession of 2008. On the other hand, cash flows in the organization are at positive levels (Figure 2), with trends for continuous increase, a fact that it is quite encouraging in regard to the firm’s prospects in the future. It should be noted that for 2009 and 2010 a limitation in the firm’s cash flows is made clear, a problem also related probably to the recession of 2008. Figure 2 – Cash flows in Fedex, from 2007 to 2013, in % (source: Fedex, organizational website, Investors relations, Performance at a glance) In general, two seems to be the key parts of the firm’s financial performance that show trend for continuous increase: cash and assets. Moreover, the investment of stakeholder has been significantly increased between 2012 and 2013, a fact denoting the trust of shareholders on the firm’s potentials. Figure 3 – Fedex, Financial Highlights for 2012-2013 (source: 2013 Annual Report, p.8) According to the figures presented above, the last five years the firm seems to face pressures in regard to its income. However, the important cash flow, which tend to be increased, along with the increase of assets and the high shareholder investment constitute a framework of protection against the potential market pressures (Figure 4). This means that the current position of the firm may not be threatened but the survival of the firm in the long term would require the introduction of an appropriately customized scheme for monitoring costs and for making better use of available resources. Figure 4 – Total return for Fedex, from 2008 to 2013 (source: 2013 Fedex Annual Report, p.8) In the above graph the continuous increase of the firm’s total return between 2009 and 2013 is made clear. The specific graph includes estimations based on different metrics, as for example the estimations of Dow Jones and those of S&P 500 (Figure 4). The graph verifies the continuous growth of the organization, from 2009 onwards, a trend that it is also proved through other, non-numerical data. Due to its culture, its values and the quality of its services, the firm has been rewarded with important awards at the level of international market. Certain of these awards are presented in the table in Figure 5. Reference is made, as an example, only to awards related to the period of 2012-2013. Figure 5- Awards for Fedex, for 2012-2013 (source: Fedex, 2012 Global citizenship and goals, p.7) When referring to a business, success can be also related to the employment relations. In Fedex, the emphasis on fairness and equality in the workplace has made the firm quite popular as an employer. In 2013 the Firm was nominated as the best employer, according to the magazine Fortune (Fedex, 2012 Global citizenship and goals, p.11). 3. Measurement of Fedex’s success If reviewed carefully, the strategy of Fedex is characterized by plans and initiatives that are quire effective in promoting business success. Indeed, the success of Fedex has been found to be related to six, key, reasons, as analyzed in next section. 3.1 Reasons underpinning Fedex’s success The reasons that should be considered as mostly related to Fedex’s success are the following: a) alignment of Fedex’s operations with the firm’s mission statement (Pride 2008). The mission statement of Fedex highlights the importance of responding to the needs of customers and shareholders and of valuing the role of employees (Pride 2008, Fedex, Organizational website, Mission/Strategy/Values). The above target is achieved by ensuring high quality in regard to the services delivered to customers, to emphasize on innovation/ advanced technology, to keep costs controlled and to ensure safety and fairness for employees (Fedex, Organizational Website, Overview and Facts); b) the firm’s workforce can be also considered as a key reason in the organizational success. Currently the employees of the firm are about 300,000 (Fedex, Organizational Website, Overview and Facts); the firm has managed to cover effectively all needs of employees, including training, compensation and personal development (Pride 2008, Plenert 2002). This practice has resulted to the creation of a quite loyal and highly competent workforce (Pride 2008). Also, ‘the compensation is among the highest of the industry’ (Pride 2008, p.60). It should be noted that Fedex has been quite successful in managing its workforce despite the size of the workforce, about 300,000 people (Fedex, Organizational Website, Overview and Facts) and its high diversity (Hartley 2006); In this context, employees in Fedex are considered as one of the firm’s competencies, having a critical role in the organizational growth (Pride 2008); c) particular reference should be made to the firm’s leadership. In fact, according to Lussier (2008) Fedex’s success would never be so high if the firm has another leader (Lussier 2008). Indeed, Frederick Smith, the leader of Fedex has managed to align organizational culture with the business environment, so that organizational failures are minimized (Lussier 2008). Smith has emphasized the value of measuring organizational performance using appropriate technology (Spitzer 2007). After measuring with accuracy the performance of business sectors it is easier to introduce strategies for covering relevant gaps or for enhancing productivity (Spitzer 2007); the ‘Survey/Feedback/Action system, SFA’ (Spitzer 2007, p.139), used for identifying and evaluating the performance of management has helped Fedex to develop a highly effective management team, a condition which is critical for the success of any business; d) the area in which Fedex provides its activities is really extensive; in fact, it has been estimated that the ‘90% of the world’s economic activity’ (Lussier & Achua 2009, p.319) is supported by Fedex. With such network of operations, Fedex has an important advantage over its rivals which cannot access such market area. Fedex can offer such support since it has the resources necessary for responding to the needs of the relevant plan (Lussier & Achua 2009); e) Fedex is a company that introduced a practice which was unknown up to the establishment of the firm: the ‘concept of overnight delivery’ (Kotler 2006, p.209). In other words, Fedex introduced a business practice that was unknown in the past; it was F. Smith, the founder of Fedex who ‘introduced this practice for the first time in the market’ (Kotler 2006, p.209). Through this idea of Smith a new business sector was created: the express transportation of letters/ parcels (Kotler 2006). In order for such plan to be feasible resources would be identified: Fedex primarily bought ‘about fourteen jets’ (Kotler 2006, p.209); today, the firm has about’ 560 aircrafts’ (Kotler 2006, p.209) for covering its operations worldwide. In fact, in terms of its fleet, the firm is considered as the most powerful, in regard to air-transportation, worldwide; f) in addition to the above, Fedex is considered as highly successful for its customer services; using appropriate technology the firm is able to secure for its customers ‘the certainty in delivery’ (Pride 2008, p.60). In modern market, where unexpected economic and social turbulences are common phenomena, meeting fully the customers’ expectations in regard to the quality of services is quite important; Fedex has managed to achieve the above target by focusing on innovation and continuous update of technology involved in business operations; in this way, risks are minimized and organizational efficiency is secured (Pride 2008). 4. Analysis of Fedex’s Strategic Capabilities 4.1 Analysis using VRIN Framework When having to assess the resources of a particular organization it is necessary to identify a framework that can respond to the needs of the relevant task reflecting clearly, as possible, the organization’s culture and values. Barney has developed the VRIN framework in 1991 (Grieves 2010). This framework is used for checking the level of uniqueness of a firm’s resources, i.e. to check whether these resources can lead to the creation of organizational competencies or not. In the context of the VRIN framework the resources of an organization can be considered as unique when they meet specific criteria: ‘a) Valuable; b) Rare, c) Imperfectly and d) Non-substitutable’ (Grieves 2010, p.134). Using this framework the resources of Fedex could be described as follows: a) Valuable; leadership, employees and technology would by the capabilities that meet these criteria, b) Rare; leadership and employees would be included in this category since the technology used by Fedex in its daily operations is also common in other firms of the market, c) Imperfectly; leadership and employees are included in this category, at the level that it would be not easy for the leadership style of the firm to be copied; also, it is not easy for other firms to reach the level of employee motivation existed in Fedex; d) Non-substitutable; other firms could create substitutes, compared to the services of Fedex; however, they would find difficulties in retrieving the same volume of assets (aircrafts) for covering the delivery needs of the firm; also, the leadership style of Fedex and the practices used for enhancing employee motivation would not be easy to be duplicated. 4.2 Analysis using the Value Chain Framework The organization’s competitiveness could be also assessed by evaluating its activities, i.e. the role of these activities in the creation of organizational value (Kachru 2005). The Value Chain model, as developed by Porter, can help to develop such task. The two categories on which this model is based could be described as follows: a) Primary activities; these are the activities necessary in ‘the delivery of service or of a product’ (Kachru 2005, p.142). Primary activities are divided into categories; these categories could be formulated accordingly so that they can be aligned with the project’s needs (Ahmed et al. 2007): a) Inbound logistics; the IT systems and the actions used by the firm to receive necessary material by suppliers; the Inbound logistics of Fedex are of high quality based on advanced technology and being supported by appropriately skilled staff; b) Operations; the delivery of parcel/ cargo from the customer to the firm, the entry of the product’s characteristics in the firm’s inventory, the delivery of the parcel to its destination and the provision of a report, usually through an SMS in regard to the progress of the order; c) Services; these are additional services related to the service delivered to the customer; for example: the insurance of a parcel or the compensation for any damage made are additional services related to Fedex, d) Outbound logistics: the transportation of parcels/ cargo to the customers; the means of transportation used in this process are also included in the outbound logistic sector of the firm (Fedex); e) Marketing and sales; in this sector the organization, Fedex, has focused on the following issues: the use of social media, the integration of marketing units and the introduction of a B2C approach. Moreover, reference should be also made to support activities, which have a secondary role in the delivery of product/ service to the customer: for example, a) Procurement; Fedex has arranged with its suppliers the limitation of prices in regard to all their goods; also, the firms has reported no delays in the delivery by its side to Fedex the material necessary for completing orders; b) Technology management; the technology used in Fedex is continuously updated, so that failures in completing orders are eliminated (Fedex, Organizational website, Overview and facts); c) Human Resource management; the workforce of Fedex is its most important competency being consisted of highly skilled employees; and d) infrastructure; Fedex has a significant number of aircrafts for supporting its global business. Also, other means of transport are available to the organization for completing its orders (Fedex, Organizational website, Overview and facts). The firm’s units are also continuously updated, so that turbulences in business environment are avoided. 5. Detailed analysis on Fedex’s international marketing strategy When referring to the international marketing strategies of organizations success is related to specific criteria, such as the extension of research developed for planning the relevant marketing plans, the number of customers attracted, compared to other marketing plans referring to similar products and the involvement of advanced communication schemes, such as social media (Czinkota & Ronkainen 2012). Moreover, it has been proved that international marketing plans are successful only if they are aligned with ‘the international trends on marketing’ (Rao 2011, p.440). The success of Fedex in the global market has been secured mostly by innovation. Indeed, the company has tried to align its operations with the new trends in retail market worldwide, as these trends also affect customer preferences in the courier, express and parcel industry of which Fedex is an important member. According to the 2013 Annual Report of Fedex the marketing strategy of the organization is highly influenced by a particular market trend: the expansion of e-commerce as a tool for buying products/ services (Fedex, 2013 Annual Report, p. 4). In addition, reference should be made to the following fact: in the past, the firm’s international marketing was based on a B2B approach; due to the appearance and the expansion of e-commerce the firm’s managers decided to employ a B2C approach in the planning of the firm’s international marketing plans, instead of the B2B used up to the then (PITCH on NET 2012). In 2013 the threats of e-commerce for the firms operating in the express transportation sector, such as Fedex, were increased (Barr 2013). As a first reaction and in order to improve its international marketing Fedex had decided to merge existing marketing functions; indeed, in April 2013 the ‘integrated marketing and the communications sections’ of Fedex were merged so that the firm’s effectiveness in regard to international marketing is increased (Kiefer 2013). Fedex tries continuously to keep its customers loyal; reducing fares and expanding areas of business coverage are key means for the above target to be achieved. For example, in September of 2013 the company introduced a new scheme so that ‘cargo can be shipped directly from India to US’ (Balachandran 2013). The cost of the new service will be kept low by using a combination of ‘premium ocean carriers’ (Balachandran 2013, par.2). According to a study developed in 2013 the priorities for customers of Fedex in regard to the services delivered to them by the firm had been changed: emphasis is given not on speed but on lower cost of transportation (Morris & Sechler 2013). At the same time, the firm introduced a marketing scheme aiming to attract SMEs: the specific marketing scheme promoted three ideas/ potentials, such as ‘local expertise, near and far, tracking and visibility’ (B2B Marketing 2013, par.2). In other words, the international marketing strategy of Fedex is based on the following practices: a) integration of activities, b) involvement of advanced technology/ social media, c) introduction of a B2C approach and d) use of e-commerce; through this practices the firm’s international marketing is expected to become quite effective, increasing the firm’s competitiveness in the global market. 6. Leadership in Fedex to its success As already noted earlier, the leadership style of Fedex had a critical role in the organization’s success. In fact, Fedex is characterized by high employee motivation, at the level that employee’s needs are taken into consideration when developing the firm’s strategic plans (Pride 2008). Also, in Fedex emphasis is given to the development of the skills of employees; innovative training schemes are used for ensuring the employees’ performance is kept high in all organizational departments (Pride 2008). For this reason, the path-goal theory is considered as most appropriate to explain the leadership style used in Fedex. The path-goal theory is based on the view that a leader is responsible for ‘clarifying the paths to goal attainment’ (Griffin 2012, p.491). In other worlds, the path-goal theory emphasizes on the power of the leader to explain to employees the path through which employees would be able to respond to the needs of their tasks (Miner 2011). In regard to Fedex’s leader the following facts have been proved: a) the particular leader, F. Smith, tends to refer to the example of leaders who have been quite successful in the history rather than to refer to modern leaders (Darr 2005), b) for F. Smith working hard is a critical requirement for success; however, it is necessary for appropriate guidelines to be given in advance, otherwise work would be set in wrong basis (Dumaine 2012). Under these terms, it is made clear that F. Smith supports the idea of continuous development of employees so that they are able to respond to the needs of their tasks. In other words, in Fedex F. Smith has set the route that employees need to follow for completing their work effectively and within the time/ cost set by the firm’s managers. 7. Sustainability and continuation of Fedex’s success 7.1 Factors that may hindering Fedex’s success In the context of the global market the success of the firms operating in the ‘courier, express and parcel industry, CEP’ (AT Kearney 2012) is depended on certain factors, such as: a) the potentials of the firms to keep their prices low, b) the quality of services and c) the existence of plans for managing risk (AT Kearney 2012). This means that if Fedex is not able to meet one of the above criteria it is quite possible for the firm’s expansion in the global market to be set in risk. In addition, globalization has highly affected all industrial sectors, including the CEP industry; the firm’s that need to secure their position in this industry have to be based on flexible strategies, so that changes can be made without the firm’s stability to be threatened (DHL 2007). Also, the industry’s firms that would like to develop a competitive advantage should emphasize on the introduction of new services, such as ‘the service to private customers’ (DHL 2007, par.2). An important challenge that Fedex would have to face in the international market is the following: urban structures worldwide have been changed; in new urban environments the delivery of parcels on time has become more difficult, due to issues such as: regulation and employment (Raphaëlle & Loic 2013). In other words, ‘delivering in the cities’ (Raphaëlle & Loic 2013, p.1) has become more difficult, a fact related also to the expansion of e-commerce in all markets worldwide. Moreover, the mode of development of CEP industry worldwide is not standardized; for example, in China the need for quite low prices in the CEP industry has lead to the entry in the sector of numerous firms, currently estimated to 35,000, which operate with quite low fees and which have made the industry extremely competitive (Mir 2013). In this context, Fedex’ s success could be possibly hindered if the firm would not be able to respond to the challenges mentioned above, as related to the CEP industry. 7.2 Suggestion and Conclusion The development of Fedex in the international market would not be an easy task. Still, the firm is characterized by a series of competencies that can guarantee, at least up to a level, the firm’s competitiveness: a) leadership style, b) uniqueness of service, meaning especially the guarantee of delivering on time, c) employee skills and employee motivation and d) quality of service/ involvement of technology. The review of the firm’s strategic framework and its leadership style has led to the following assumption: the firm’s success is primarily related to its leader. Through the years, the quality of services has become a characteristic of the particular brand guaranteeing organizational growth. Still, in the modern market the expansion of the firm would be quite difficult. In fact, even the survival of the firm in its industry would be set in risk if certain issues would not be appropriately addressed: a) the firm should emphasize not only on the update of its marketing strategy but also on the continuous improvement of its services, with a particular reference to the adding of new services so that competitiveness is secured, b) efforts should be also made for increasing the firm’s presence in advanced communication means, such as social media; such plan is already in progress but should be further enhanced, c) the potential of strategic alliances, as a tool for securing access or increasing presence in certain markets should be checked; and d) the competencies of the firm should keep their value only if they would be incorporated in the firm’s strategy, i.e. if they would become part of daily business operations; otherwise, the importance of these competencies in supporting business growth could be soon minimized. For example, if the tasks assigned to the firm’s employees are not carefully checked, as of their alignment with employees’ skills then the potentials of employees to support business growth could be reduced, even if these employees would be highly skilled or experienced. 8. References Ahmed, R., Lim, K. & Loh, A. (2007) Learning Through Knowledge Management. London: Routledge. AT Kearney (2012) “Courier, Express, and Parcel: Market at a Crossroads.” June 2012. AT Kearney. Retrieved from http://www.atkearney.be/transportation/ideas-insights/article/-/asset_publisher/LCcgOeS4t85g/content/courier-express-and-parcel-market-at-a-crossroads/10192 B2B Marketing (2013) “BRAND NEWS: FedEx launches SME campaign.” Nov.14, 2013. B2B Marketing. Retrieved from http://b2bmarketing.net/news/archive/brand-news-fedex-launches-sme-campaign Balachandran, M. (2013) “FedEx Trade Networks launches new premium service between India, US.” Sep.19, 2013. Business Standard. 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