Successful Company FedEx Corporation - Essay Example

FedEx Corporation Introduction FedEx Corporation (hereafter referred to as FedEx) is one of the largest global courier delivery services companies in the world. It provides a broad portfolio of transportation, e-commerce and business services to its clients (Business Wire, 2012). FedEx was founded by Frederick W. Smith (hereafter referred to as Fred Smith) with the vision of providing a quick pickup and delivery service in the United States. A Successful Company FedEx has grown by leaps and bounds since inception. The success of the company can be gauged from the fact that it serves more than 220 countries and territories all over the world. Its humongous network reaches each and every address in the United States. The behemoth manages an average of 10.2 million shipments on a daily basis. The companys website fedex.com receives more than 32 million unique visitors monthly (FedEx, 2014).  FedEx earned revenue of $44, 287 million in 2013, up from $42,680 million in 2012. The company’s net income has however fallen from $2,032 million in 2012 to $1,561 million in 2013. The operating margin and return on average equity of FedEx from 2009 to 2013 is depicted in Graph 1. Source: Fedex.com The graph indicates that FedEx operating margin rose for four consecutive years from 2009 to 2012. The company had an operating margin of 7.5 percent in 2012 which dipped to 5.8 percent in 2013. FedEx’s return on equity has also followed a similar pattern. It grew considerably from .7 percent in 2009 to 13.6 percent in 2012. Thereafter it slumped to 9.7 percent in 2013. The financial parameters suggest that 2013 has been a tough year for the company. However, prior to that FedEx has delivered sound financial results for four consecutive years. The decline in profitability in 2013 can be attributed to sluggish performance at FedEx’s Express segment which incurred an operating loss of $705 million. The company’s profitability was also negatively affected by $100 million impairment charge due to its decision to retire 10 aircraft from its fleet. The stock price of FedEx indicates that investors are happy with the performance of the company and believe that it will provide good returns in the future. The stock price of Fedex on the New York Stock Exchange (NYSE) from April 2012 to April 2014 is depicted in Graph 2. Source: Finance.yahoo.com The graph indicates that the stock price of the company has risen considerably from $87.25 in April 2012 to $135.47 in April 2014. The stock price rose at a fast rate during 2013. In fact it registered the maximum increase of 25 percent from July 2013 ($105) to October 2013 ($130.72). Reasons for Success FedEx relentlessly pursues its goal of delivering fast, reliable and top-of-the-line delivery services. The company’s success can be attributed to its work culture, excellent customer service, use of technology and adoption of innovation as a central theme of business level strategy. Superior Customer Service The company realizes the importance of impeccable customer service and has tried to satisfy the needs of its customers in a superior manner. FedEx had, in collaboration with Motorola, developed pocket PC for couriers to enhance customer service (Editors, 2002) FedEx also has a foolproof complaint management system where consumer complaints are speedily handled.  Organization Culture FedEx has built a culture wherein every employee is urged to express ideas and strive for excellence (Flaum, 2005). This has ensured that its employees do not become complacent. The company has flourished primarily because of the passion with which FedEx employees serve customers (Smith, 2001).  People First Barney & Wright (1998) aver that FedEx works on the philosophy of ‘people-first.’ Fred Smith is a staunch believer of the fact that customer satisfaction begins with employee satisfaction. State-Of-The-Art-Technology FedEx has embraced technology to ensure that customers can track their orders through multiple platforms. Use of technology has enabled the company improve its effectiveness and efficiency. A case in point is the bar code system generally used in retail stores. FedEx was a pioneer in using the same bar code technology to track packages.  Equipped with state-of-the-art-technology, FedEx launched its Critical Inventory Logistics services to enable customers efficiently manage high-value and time-critical inventory (Business Wire, 2012). The new service was targeted at the telecommunications, semiconductor, and biomedical industry. Innovation FedEx has adopted innovation in all facets of its business. The company uses innovative techniques and processes to make life easier for its customers (Evans, 2002). The company has also improved its business operations to discharge its corporate social responsibilities. Adoption of innovation as a business practice has enabled FedEx save millions of dollars and become more competitive (FedEx, 2014). The Fortune magazine has rated FedEx as one of the 10 most admired companies in the world which is a clear indicator of the success that FedEx has achieved. Value Chain and VRIO Framework Value Chain Michael Porter put forth the value chain analysis wherein he stated that a firm has four support activities and five primary activities. The four support activities namely firm infrastructure, human resource management, technology development and procurement with respect to FedEx are discussed below. Firm infrastructure FedEx has a robust infrastructure in place which ensures the smooth functioning of its day-to- day business. The behemoth has 1,200 stations and 10 air express hubs for its Express services. The company has 33 ground hubs and more than 500 pickup and delivery terminals. Its operating facilities include close to 370 service centers and more than 1,800 offices.  FedEx’s air operations are performed through a fleet of 649 aircraft, while express, ground, freight and expedited delivery service are carried out by 1,00,000 motorized vehicles. FedEx also has 6,300 authorized ShipCenters and 37,000 drop boxes that add to customer convenience. Human Resource Development FedEx was founded on a ‘people-first’ philosophy. The company takes utmost care of its team members. FedEx encourages its members to contribute and grow. The company has embraced diversity in its human resource management practices. Two-fifth of FedEx’s U.S. workforce is minorities. 27 percent of its management team is also minorities. FedEx continuously tries to improve its safe work practices. Safety and health principles are incorporated into all aspects of FedEx’s business. The company has developed numerous recognition programs for celebrating employee achievements.  FedEx has been listed in the Fortune “100 Best Companies to Work For" list ten times in the past eleven years. Technology FedEx has been at the forefront when it comes to embracing technology. The company has used state-of –the-art technology in all facets of business to deliver value added services to customers. FedEx has tied up with information-technology service providers and cloud-computing companies to reduce its operational costs (FedEx, 2014). The company has a robust network in place that helps it track more than 25 million tracking requests per day. Fred Smith’s philosophy that information about the package is as important as the package itself is followed in letter and spirit at FedEx. The use of technology to streamline operations has not gone unrewarded for FedEx. Gaining customer loyalty is an obvious advantage. The company has been ranked No. 35 among top U.S. technology innovators by InformationWeek 500 (FedEx, 2014).  FedEx has a fast, easy-easy-to-use and functionally advanced website. Consumers can generate their own unique bar-coded shipping labels on FedEx’s website. The company is in the process of creating a new computer-aided technology that will help determine the most fuel-efficient speed at which an aircraft should fly. FedEx spent $452 million on information and technology investments in 2013 (FedEx, 2014).    Procurement FedEx maintains diversity in its supply chain as well. The company strives to have minority, women-owned and small-business suppliers in its supply chain. The company also pays emphasis on socially responsible procurement. The five primary activities of FedEx are discussed in the ensuing paragraphs. Inbound Logistics The primary activity of inbound logistics starts with the pickup of packages from drop boxes, offices, residences as well as FedEx centers. There are numerous ways in which a customer can place an order for a pick up. Customers can simply log in and arrange a pick up online. FedEx follows a hub and spoke model to conduct its business. All packages are transported to a central hub.  Operations The packages received at the central hub are sorted according to their destinations. This is a critical activity as it forms the backbone of correct and timely delivery.  Outbound Logistics The activity of outbound logistics entails pick up of packages from the hub and delivering these packages to the correct destination. FedEx bagged the Logistics Management Magazine: Quest for Quality Awards – “#1 Air Express Carriers”, Readers Digest: "Asias Most Trusted Brands, Air Freight/Courier Service" in 2013 because of its impeccable services. Marketing and Sales FedEx rolls out discounts and various promotional offers for small businesses through its alliances. These campaigns include Rocket Lawyer, First Data, Express Management Processing Solutions (EMPS), Neopost USA, Volusion, and Hertz Business Rewards (FedEx, 2014). The other marketing activities include advertisements for brand building and generating sales.   Service The service function of FedEx enables customers track their orders in real time. Customers have the option of tracking their packages by tracking number, by reference, or by TCN. The FedEx Desktop tracking system monitors shipment status and sends notifications to the customer’s desktops.  Key Linkages in Value Chain It is important to understand that there is an important linkage between the support activity of infrastructure and the primary activities of inbound logistics, operation and outbound logistics. Another important linkage is that of the support function of technology with the primary activity of service. FedEx has the capability to manage huge volumes because of its massive infrastructure and deployment of technology across functional areas. The use of technology has also made the service function of the company extremely effective.  VRIO Framework FedEx’s distinctive competencies stem from its commitment to innovation and adoption of new technologies. The assurance to serve its customers in a superior manner has enabled FedEx reach dizzy heights. FedEx has approached innovation as a discipline and created an open culture in the company. The company is able to introduce new services, and cut costs due to its persistence in incorporating innovative processes. The setting up of FedEx Institute of Technology in collaboration with the University of Memphis highlights the importance that FedEx pays to innovation.  The VRIO framework is used to gauge whether the resources or capabilities are a source of competitive advantage to the firm. ORiordan (2006) avers that VRIO is one of the best tools to examine the internal environment of the firm. Value A capability is considered to be of value if the firm benefits by using it. This benefit may accrue to the company by way of increased revenue, efficient processes, reduced costs or increase in scale of operations. Innovation has definitely benefitted FedEx in many facets of business and can therefore be considered as valuable to the company. Rare The use of state-of-the-art technology, per se, may not be rare. However the ability to use this technology in innovative ways is definitely a rare capability. A culture that encourages people to adopt new technology and contribute new ideas is also a rare, intangible resource. Imitability FedEx has used information technology in various aspects of business. The company has linked all its business operations with the help of technology. The business processes of FedEx are so streamlined that the company can provide minute by minute status of any package that has to be delivered to a particular destination. Replicating such a massive integrated business operation that spans more than 200 countries of the world would be very costly to imitate. Organisation The policies and procedures of FedEx are pretty well organised to take advantage of its innovation capabilities. The company was the first in the industry to adopt wireless technology systems in its business operations. FedEx is using innovative techniques to pursue sustainable growth. It initiated the Fuel Sense Program and saved 49 million gallons of fuel and stopped 4, 66, 000 metric tons of carbon dioxide emissions from entering the ecosystem (FedEx, 2014). A Well Managed International Strategy FedEx had the requisite wherewithal in terms of expertise, financial resources and human resources and therefore embarked upon an aggressive international strategy. The company’s international operations are divided into the following geographical zones; Asia Pacific Region (APAC), Europe, Middle East, Indian Subcontinent and Africa (EMEA), Latin America and North America (FedEx, 2014).  APAC The FedEx Express President for APAC is David L. Cunningham, Jr. The company’s Asian operations are headquartered in Hong Kong and the APAC hub is located at the Baiyun International Airport, Guangzhou, China. FedEx covers more than 30 countries and territories in this region. Of all the countries in the region, China remains the biggest focus area for FedEx as it is one of the fastest growing markets in the Asia Pacific region (Mahmudova & Tett, 2011; Journal of Commerce, 2014)). FedEx commenced its operation in China in 1984 and operates as a wholly foreign-owned enterprise in the country. FedEx operates more than 220 flights to and from four cities in China; Beijing, Shanghai, Guangzhou, and Shenzhen on a weekly basis. Over the years, China has made rapid strides in developing its infrastructure like airports, roads and rails which has benefitted FedEx tremendously. After gaining a foothold in China with its Express services, the company has launched FedEx Critical Inventory Logistics services and FedEx Trade Networks in the country. EMEA   The EMEA operations are headquartered in Brussels, Belgium and are managed by 20, 000 employees. David Binks is the FedEx Express President of EMEA. FedEx operates in 127 countries and territories in the region with its main hubs in France, United Kingdom, Germany, United Arab Emirates and India. Fedex’s unrelenting adoption of stringent standards has enabled the company to provide customers in EMEA region access to next-day service to the U.S. and APAC. To improve its connectivity inside as well as between countries, FedEx has made many acquisitions in the EMEA region. Some prominent acquisitions include ANC in UK, Flying-Cargo Hungary Kft in Hungary, TATEXin France, Opek in Poland, and PAFEX in India. Latin America FedEx is one of the largest transportation companies in Latin America and the Caribbean. It serves territories spread over nine million square miles in Latin America. Overall, FedEx covers 50 countries and territories with its hub at Miami, Florida and has 17,000 employees and contractors to carry out its operations in the region. The company has launched tailor made services from time to time in this region. In 2004, the FedEx introduced Transborder Distribution, a cost effective shipping solution for Mexican exports to the United States. Likewise, FedEx Express Nacional, a reliable, domestic next-business-day delivery service was launched in Mexico 2008. FedEx Express acquired MultiPack in 2011 to consolidate its position in Mexico. A year later, FedEx acquired Rapidao Cometa, one of the biggest logistics companies in Brazil. FedEx connects Latin America with the rest of the world through a fleet of more than 1,000 delivery vehicles. North America In 1973, FedEx made a humble beginning from Memphis, Tennessee. Four decades down the line, FedEx has become a household name in North America. The company has the prowess to connect any two major cities in North America within 24 hours. FedEx provides a vast array of services and has the expertise to satisfy any kind of shipping need. FedEx has more than 2, 85,000 employees and its major hubs in the region are located in California, New Jersey, Texas, Indiana and Alaska. Analysis of International Strategy FedEx has tasted success in foreign markets. It made acquisitions in Brazil, France and Poland which propelled the company’s international domestic revenues by 64 percent. Another parameter than indicates the success of FedEx’s international strategy is the average daily package volume (ADV) handled by the company. The details of ADV handled by FedEx are shown in Table 1. Table 1: Total Average Daily Package Volume (ADV) (000) Parameter 2011 2012 2013 % Change (12 to 13) U.S. Domestic ADV 2684 2577 2543 -1 International Export ADV 575 559 576 3 International Domestic ADV 348 495 785 58.6 Total ADV 3607 3631 3904 7.5 Source: Fedex.com FedEx has performed exceedingly well in the ‘International Domestic’ segment which includes the company’s international intra-country express operations. The business did particularly well in India, Mexico, Poland, France and Brazil and delivered an annual growth of 58.6 percent in 2013. Contribution of Leadership Fred Smith, founder of FedEx, is the present Chairman and Chief Executive Officer of the company. He is ably supported by three Executive Vice Presidents; T. Michael Glenn (Market Development and Corporate Communications), Alan B. Graf, Jr. (Chief Financial Officer) and Christine P. Richards (General Counsel and Secretary). The company has a divisional form of organisation structure. Fred Smith’s other one-downs include three operating company CEOs. Such staffing at the top ensures that all the operating segments of FedEx are supervised appropriately (FedEx, 2014).  Fred Smith’s contribution to FedEx’s success has been monumental. Fred Smith was born in a well-to-do family. He is however a self-made man. Fred’s story is that of grit, determination and belief in his ideas (Brown, 2014). FedEx was on the verge of bankruptcy within the first two years of operations. Strange it may sound, but Fred Smith bet the payroll to raise resources for FedEx. Throughout his career, his positive attitude and perseverance helped Fred Smith to tide over the problems that he encountered (McLaughlin, 2005). Fred Smith’s two major tasks considerably helped FedEx become a Fortune 500 company. First, Fred believed that he had a great business plan and pursued its entrepreneurial venture with tenacity. To him failure was not an option. Secondly, he demonstrated enormous resolve to champion the cause of changes in air traffic regulations in the United States (Brown, 2014). Such changes in rules and regulations were essential for FedEx’s success. Fred Smith has a hands-on management style and is always willing to embrace new ideas and technologies (FT.com, 2007). At present, Fred Smith provides strategic direction to all FedEx Corporation operating companies. Fred Smith, a U.S. Marine Corps combat veteran, believes that it is important to support subordinates and take care of them to get the best out of them. Fred Smith empowers managers and expects them to deliver results. He is a staunch believer that fair treatment of employees results in company loyalty (FT.com, 2007). Some of the strategies that he follows in business have roots in the advice that he got during the Vietnam War. ‘Shoot, move and communicate’ was the lesson he learnt during the war. Fred believes that this message can be applied to the real business world as well (McLaughlin, 2005). Fred Smith has been at the helm of FedEx for four decades now. His inspirational leadership has enabled the company reach dizzy heights. However, as a prudent leader, Fred has a formal succession plan in place. In fact, as a policy, every position above the level of a managing director at FedEx has two designated potential successors (FT.com, 2007). Continuation of FedEx’s Success There are many factors that may adversely affect the operations of FedEx and prove to be stumbling blocks for the company in future. The company must manage these aspects to ensure that it continues to succeed in the marketplace. Fuel Costs One of the biggest factors that FedEx needs to be wary of is the rising fuel prices. FedEx spends billions of dollars on fuel every year (PR Newswire, 2007). The company should look to modernise its fleet and purchase more fuel efficient planes. It has already taken steps in the right direction by retiring 90 aircraft during 2013. The replacement entails high capital expenditure but is necessary for the long term success of FedEx. In addition to this, FedEx should continue to work on innovative techniques to save fuel. Its Fuel Sense initiative has been a success. The company has also benefitted considerably from fracking (Lapide, 2014). It is recommended that FedEx should spend on research and development in the domain of bio-fuels. The company should work relentlessly to achieve the goal of using 30 percent alternative energy by 2030 (FedEx, 2014). International Markets FedEx can continue to enjoy success if it strives to grow in international markets like India and China. The company will have to build economies of scale and scope to lower its unit costs. This will enable FedEx charge lower prices from the value conscious consumers of these countries. The company has already made some acquisitions to increase its foothold in international markets. Further acquisitions are recommended as FedEx has the financial strength to pursue this strategy of inorganic growth. E-Commerce E-commerce has revolutionised the way business is done. FedEx should cash in on this opportunity and develop specialised tools and services to cater to the needs of the consumers and retailers alike (Journal of Commerce, 2014). Tie ups with behemoths like Amazon.com will provide large volumes to FedEx. On the other hand, FedEx can charge premium prices by rendering logistics support to a small niche player catering to a small geographic region of the world. Services like FedEx Home Delivery and FedEx SmartPost are likely to be major revenue churners for the company in the future. Holiday Season During the holiday season, there is significant spurt in the volume of shipments. FedEx should be geared to handle the increase in demand by hiring part-time, seasonal workers. FedEx had launched an annual holiday sitelet to help its customers find about information on the company’s services and money-back guarantees (Business Wire, 2004). Favorable Economic Conditions The pangs of the latest recession of 2008 are still being felt in certain sectors. Once the economy looks up, there is bound to be an increase in consumer sentiment and the quantum of shipments arising from more personal and business deals. 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