Federal Express Value Creation Frontier - Assignment Example

Business Management of the of the Contents Contents 2 Federal Express’s Value Creation Frontier 3 Product Differentiation 4 Assessment and Recommendation 6 Global Competition 7 References 9 Federal Express’s Value Creation Frontier Federal Express has been one of the earliest organizations that had ventured into the business of air freight. The company began under the leadership of Fred Smith Jr. and has undergone a number of changes since its inception to become one of the most successful businesses in air freight industry. The company has been able to withstand times of economic distress when other similar organizations were running losses and exiting from the market. The company has followed effective business decisions which have been able to improve its competitive advantage over its rivals. Strategic partnerships with other business organizations have been a key factor which has helped the company in its global expansion and dominance. In general four blocks of competitive advantage has been identified that provides an organization to outcompete its rivals. These are efficiency, customer responsiveness, quality and innovation. These factors help a firm to achieve either lower cost or higher product differentiation which in turn provides competitive advantage. In case of Federal Express for the company to maintain its profitability above average it is integral that it continues to develop its logistics more robustly (Gendron, 2012). The development of logistics services began from the period of 80’s and all the major competitors began to provide logistics services to assist the business customers in activities like assembly operation, warehousing and distribution. This can help the organization to develop its customer responsiveness and contribute in the long term-profitability. Better logistics management can help the customers to meet their customized requirements into a standardized physical network. Two direct advantages can be derived from this firstly, the reduction of cost and secondly higher cost capacity utilization. The customers can achieve higher level of satisfaction from the better security arising from this. Therefore, it seems plausible that higher investment in the BLS Division of the company which takes care of the logistics division is likely to bring more customers for the company which in turn will help in achieving higher revenues. This strategy is better than the price cutting strategy as such behavior often induces similar responses from the competitors which may fail to provide benefits in the long-run. Also UPS one of the biggest rivals of Federal Express had focused heavily on improving its logistics services in order to retain its competitive advantage throughout 2000’s. This is perhaps one of the reasons that the company has been able to achieve a higher market share in 2010 compared to Federal Express which was once the market leader (Hill & Jones, 2012). Product Differentiation The concept of product differentiation mainly arises when there are similar but no identical products available within a product class. A portion of the existing literature suggests that product differentiation is a part of management strategy of a firm that tires to portray the product that is being offered by a particular organization in a different light based on either physical or non-physical characteristics (Gendron, 2012). There are only two possible ways in which Federal Express can introduce product differentiation. This is either through price differentiation or difference in delivery times. It will be beneficial for the Federal Express if it differentiates products on the basis of delivery times. The biggest advantage in this type of a strategy is that the company can always charge higher price for the customized products without increasing the overall price of the services or the products offered. This type of a strategy has advantages from the demand side and the supply side perspective (Berger, 2011). This is because the customized products offered individually for distinguished customer segments have the advantage of raising the overall demand from each of the independent segments. From the supply side perspective the firm can either share the capacity for the same segment or provide different capacity for each of the segments. UPS, the biggest competitor of Federal Express had also shown introduced premium services by altering the time of delivery much before when none of the competitors had followed the suit. The research conducted by Allon & Federgruen (2007) has shown that customizing products play a major role in determining the optimal price that is to be charged by the organization and the service delivery time. This implies that if a particular firm has a shared capacity then it is more likely that it will offer differentiated products (Allon & Federgruen, 2007). The concept of premium product offering of the air freight industry that is based on different service delivery time to suit the customer needs has been proved to be successful for UPS to create a unique position in the market for itself. It is important that such product differentiation and differential pricing can also be introduced by Federal Express to improve the level of service offered to the customers (Hill & Jones, 2012). In this regard it can be argued that introduction of software for product tracking has been one of the major attempts that have been made by the company for the purpose of improving the aspect of product differentiation. This is because software tracking has reduced the number of errors in the service delivery, helped to improve the level of product differentiation and finally reduced the time for delivery of the service. Introduction of this disruptive technology by Federal Express has definitely been able to improve the level of service by the company. The company has also introduced overnight service delivery. This move by the company has been considered as an industry-wide product differentiation strategy (Hamilton & Webster, 2012). Assessment and Recommendation The current business model of Federal Express is quite were built which has allowed the company to continue its market operation and maintain its position in the market. The company has over-time introduced product differentiation strategy in order to remain competitive. The basic business of the company involves providing services to both individual and business customers. The company has a large number of companies operating under it like FedEx Freight, FedEx Express, FedEx Ground and FedEx Services. These companies operate at an individual level and are not under the direct control of the management yet they are managed collaboratively (Hamilton & Webster, 2012). One of the primary ways in which the company had been able to increase its market share consistently in the market is by forming strategic partnerships with a number of other corporations over the years as its primary strategy for internationalization. An analysis of the business operations of the company has revealed that structure of employee management of the company has been one of the key strengths in which the cost of operation has been reduced. Most of the employees who work for the company work on the basis of contracts and not on the basis of full time contracts. Apart from the low cost structure followed by the company, product differentiation has also been an integral part of the business model of the company. The company has managed to follow most of the trends in the market and reacted quickly to them by modifying its products to suit the needs (Keller, Parameswaran & Jacob, 2011). For instance, the introduction of “second day delivery” system is one such example. Though the company was not the first mover in this regard yet it had quickly identified the market opportunity that could be derived from this opportunity and it had introduced this system right after Airborne Express’ implementation. The benefits were realized quickly by the company. Similarly, the introduction of logistics services by the company was also another example. Presently the business of the company spans from delivery of small packages along with documents on a global scale. The company has also been able to catch up with the pricing trends in the market by closely following the pricing strategy of its competitors. This has also been one of the reasons for which the other companies like Purolator Courier which were involved in this business went out of business yet Federal Express had grown form strength to strength (Hill & Jones, 2012). Despite the robust growth of the company in the last decade it had lost its leading market position. One of the recommendations for the business to improve its business level strategy is to introduce real-time packing of products. This can be done by charging extra fee from the service users. This will provide additional benefits to the customers while improving the reputation for the company. Presently the company manages its business by barcode scanning which has been in practice since 90’s. This process tends to be a laborious process and manual errors may result in the reduction of accuracy. “Radio Frequency Identification” can provide a solution to the problems of the company. This move may be accompanied by the installation of GPS system (Amsler, Cullen & Erdmenger, 2010). The major benefit that will accrue to the customers from this strategy is that it will help them to track the products on real time basis and able to create better customer loyalty. Global Competition One of the primary traits of the global air freight industry at present is the increasing globalization of the world economy and the improved trade relations between the nations. All the business houses have a tendency to reduce their inventory stock and promote in-time delivery to the customers. This provides improved business opportunities for the entire air freight industry. The global level of competition is very high most of the industries like electronics, computer software and medical instruments. Apart from this the trade relations between the U.S. and the Asian countries also means that there are a large number of paper work that requires swift transportation through the Air. Whole sellers are also increasing the demand for air freight transportation as their business structure is also changing. On account of the profitability of the business and the emerging opportunities in the air freight business a number of companies operating on a global scale are aggressively competing against each other. This type of a business environment means that it is extremely important for the companies to maintain a level of competitive advantage over its rivals so that it can increase the customer base to a maximum (Hill & Jones, 2012). If the company adopts a real time tracking system for tracking the goods then it will be able to manage the global competition in a better manner. This is because the goods sometimes need to travel long distances and the value of them may also be very high. Under these circumstances it is likely that the customers may be skeptical about using the service of the company if they are unable to track their goods on a real time basis. If this technology is adopted by the firm then it is likely that the customers will be more willing to have a business relationship with Federal Reserve than others. This will even earn higher revenue for the company and improve the profit margin. Globalization and increasing use of air freight services are likely to raise the use of such a service by majority of customers. References Allon G. & Federgruen , A. (2007). Competition in service industries. Operations Research, 5(3), 37-55. Amsler, M., Cullen, J. & Erdmenger, J. C. (2010). Strategic Report for FedEx Corporation. Vector Strategy Group. Retreived from http://economics-files.pomona.edu/jlikens/SeniorSeminars/vector2010/pdf/fdx.pdf Berger, A. (2011). Case study: A FedEx corporation. Munich: GRIN Verlag. Gendron, M. S. (2012). Business intelligence applied: implementing an effective information and communications technology infrastructure. New Jersey: John Wiley & Sons. Hamilton, L. & Webster, P. (2012). The International Business Environment. Oxford: Oxford University Press. Hill, C. & Jones, G. (2012). Strategic management cases: An integrated approach. Connecticut: Cengage Learning. Keller, K. L., Parameswaran, M. G., & Jacob, I. (2011). Strategic brand management: Building, measuring, and managing brand equity. New Delhi: Pearson Education India. Read More