Strategic Management and Leadership: Federal Express - Case Study Example

Strategic Management and Leadership: Federal Express Word Count: 3455 Table of Contents Introduction 3 Company Data 3 Business Reasons why FedEx Succeeded 6 Strategic Capabilities 8 Value Chain 9 VRIN Analysis……. 9 Contribution of Leadership to FedEx’s Success 11 Organisational Culture 12 Innovation Strategy 13 Future Risk Factors to Success 14 Conclusion 15 Bibliography 17 Introduction FedEx, formerly known as Federal Express, is a global courier delivery service based in Memphis, Tennessee, USA. It deals with third-party logistics, mail, postal deliveries, and freight forwarding. It was founded in 1971 in Little Rock, Arkansas as Federal Express Corporation by Frederick Smith. Today, it is one of the leading courier services operating across the globe having employed over 200,000 people, with over 600 aircraft and fleets of vehicles distributed all over the world. On average, 17 million packages are transported every 24 hours by FedEx (Rhoades, 2014). Owing to its fast growth and acquisition of the top spot in the global market, FedEx has been described as “an overnight success.” This study will evaluate the success of FedEx, highlighting strategic management and leadership as the central values that saw it rise to dominate the global courier market. Company data FedEx Corporation is a successful organisation in the 21st century as evidenced by the following data; First of all, despite financial problems during its earlier days, FedEx has risen to become the leading courier service provider in the United States and can be compared with other global players in the courier industry. FedEx is estimated to be worth around 27 billion USD, with total annual revenue estimated at 45 billion USD (Hill & Jones, 2012). Comparison is not enough; rather, the revelation offered by eBay (2006) that in comparison to USPS, DHL, and The US Postal Service, FedEx is the fastest courier service provider. This makes it a preferred courier service provider in that it has become reliable when it comes to speedy “overnight” delivery. Fig. 1 FedEx’s five-year cumulative total returns compared to S&P 500, Dow Jones (Fedex, 2014) In figure 1 above, FedEx’s cumulative total returns have risen over the years, levelling against the S&P 500 and Dow Jones indices and retaining its dominance in the stock market since 2009 to 2014. Owing to its impressive performance, the FedEx share proves business dominance in the United States. Fig.2 FedEx Express US and international average daily package volumes 2011-2014(Fedex, 2014) As figure 2 above shows, despite a decrease in its average daily package volumes in the US market, FedEx demonstrates that it has taken its competition international. This is because its average daily package volume internationally has been increasing gradually since 2011, attaining its highest figures in history in 2014. This represents success in the international courier sector. Fig. 3 FedEx’s US and international revenue per package yields 2011-2014(Fedex, 2014) Figure 3 shows the results that since 2011, FedEx’s domestic (US) revenue per package yields have been on the increase. This represents sustained and improving business performance. Similarly, the international revenue per package rates have either increased or been retained at healthy values. Additionally, FedEx has received multiple awards in the past owing to its success as a global enterprise. In 2013, it scooped a total of 6 awards; first, it was ranked by the Solar Energy Industries Association as one of the top 25 commercial solar users in the United States. Second, it was recorded in the CR Magazine as one of the companies in the Best Corporate Citizens List. Third, it was named by the Global Forests Report as the leader corporation in the transport sector for disclosure of deforestation risks in the Carbon Disclosure Project. Its fourth award in 2013 was at the 5th Global CSR Awards in the Philippines where it was awarded gold for the best community program owing to the Flying Eye Hospital Program that it Sponsors. Its final award for 2013 was being recognized by the National Conference on Citizenship and Points of Light as one of the Civic 50’s Most Community-minded companies in the United States. In 2014, the most outstanding reward it received was being ranked at number 8 in the Fortune Magazine as one of the most admired companies in the world (FedEx, 2014). Evidently, all these statistics about FedEx point at it as a successful global corporation in that having risen from an unstable start, it has grown to attain global recognition. Factors such as featuring in the US stock market, competing with, and outdoing international courier providers, experiencing rising domestic and international revenue and packages, and finally scooping justify that FedEx is indeed a successful 21st century corporation. Business Reasons why FedEx Succeeded The successes of FedEx can be attributed to different parts of its corporate strategies; internally and externally. Its overnight success has seen it surpass courier providers that have been in operation for centuries as well as capturing a larger market share than them. Concisely, it can be said that FedEx has grown fast, considering the fact that it has only been operating for 43 years. The following are the potential reasons behind the overnight success of FedEx. One dominant reason behind FedEx’s success is that it has earned recognition and trust in its clients as a reliable courier service that delivers what it has to, on time, and safely. This is evident in that it is recognized as the fastest courier service provider in the United States (Paine, 2011). Second, FedEx captured the wider market share by being unique in that it offers flexible solutions for every single package. In short, as compared to other logistics companies, FedEx offers specialized solutions for every trade and shipping. Third, FedEx dominates in terms of service level. Apart from being reliable in terms of reliability, it attracts minimal consignment damages, offers package tracking, adheres even to strict timelines, and the pricing is fair with regards to its quality and level of service. Fourth, customer experience has contributed to FedEx’s success. The handling of customer enquiries and complaints is satisfactory as is evident on their website. There are open lines, 24 hours a day to cater for their clients. In addition, enquiries are made online and are attended immediately. Minimal complains are also offered in the actual picking or delivery of packages. Product offering is the fifth factor of success in FedEx’s case. In product offering, FedEx offers its services differently from other logistics companies in that the clients decide how they need their packages to be sent. In short, a package may be sent via road or air depending on the client’s specification. They are then charged as per their preferred way of courier. In other companies, the choice of the means of transport is not offered. The sixth factor for FedEx’s success lies in its workforce and corporate culture. The organisation values its employees and therefore strives to maintain them in the best manner possible. As such, they have the best compensation rates in the market, and also offer their employees the best training for the job. In return, the employees remain loyal effective, and highly efficient in delivering perfect services. It is for such reasons that it has been awarded for being one of the best companies to work for (Ferrell, 2006). FedEx’s Corporate Social Responsibility is the seventh reason explaining its success. As is evident from the awards in received in recent years, it has been participating in several CSR projects such as sponsoring the Flying Eye Hospital Program. This and other forms of CSR have contributed to its success as CSR is a key determinant to business success. Finally, the application of highly effective marketing by FedEx has contributed to its success. This is evident in that rather than provide logistics services, FedEx recognizes customer needs that are untapped and emphasizes on them. For instance, they realized that offering their clients the choice of air or ground transport would create a business channel. Additionally, they do not rest on fixed business ideologies but keep improving their offers to satisfy and attract more clients (Ferrell, 2006). Strategic Capabilities FedEx can be said to have attained unique competitive advantage, and that is what has enabled it to succeed. Competitive advantage is created by coming up with, and adhering to a strategy. Concisely, FedEx has displayed the logic of a successful strategy that brings together a fit between the external environment, internal capabilities, goals, and objectives, and structured them into a common framework of long range planning. These will be evaluated through a value chain and VRIN analysis of the corporation below. Value Chain FedEx creates value to its customers by leveraging on employee development and investment in infrastructure. As Michael Porter’s Generic Value Chain dictates, value is created at two levels; primary and support activities (Harmon, 2010). At FedEx, marketing, sales services, outbound logistics, and inbound logistics form their primary activities. On the other hand, the support activities include technology development, human resource management, and infrastructural development. Collectively, these activities create value that enables FedEx to react to opportunities and threats in the logistics industry (Gendron, 2012). In this way, it has managed to sustain competitive advantage. The resulting value means that for a competitor to match its level of competition, they need to invest heavily to get to FedEx’s level. An example of value evident in FedEx’s business model is the ability of clients to create an account and use it from any part of the globe to track their packages. In this, peace of mind, saving of time, and efficiency is achieved by their customers. Therefore, for a competitor to imitate such value, they would need to invest heavily, and this would always place FedEx at the front. VRIN Analysis The VRIN (Valuable, Rare, Imperfectly imitable, Non-substitutable) principles enable an organisation to weigh its potential in terms of resources required to generate a sustainable competitive advantage (Talaja, 2012). FedEx’s success again is attributable to its effective application of the VRIN principles in gaining sustainable [long-term] competitive advantage. On being valuable, FedEx applies value-creating strategies that enable it to outdo its competitors. For instance, it was able to outdo its competitors mainly due to its unique customer experience that provides its clients with options whether to use ground or air transport. In terms of being rare, FedEx rolled out this service that provides clients with options, and additionally, it proved to its clients that it can provide the fastest and most reliable courier services. This added up to being rare in that no other logistics company is offering similar services or resources. The in-imitable principle is very important in that if a valuable resource can be under the control of one organisation, then it becomes a source of competitive advantage. To attain further advantage in terms of competitiveness, the resource should impossible or hard to imitate. In FedEx’s case, in-imitability was achieved in that owing to its ownership of hundreds of aircraft and fleets of vehicles all over the world, they could come up with competitive business advantages. For instance, it is impossible for other players in the logistics context to imitate the choose-how-we-serve-you service at FedEx. This is because they would have to invest heavily on aircraft, staff, and vehicles such that these services can be available whenever customers need them. In the meantime, as the competitors try to imitate such, FedEx remains the leading logistics corporation. The final principle of achieving sustainable competitive advantage is in a resource being non-substitutable. This means that a firm should come up with competitive elements that cannot be weakened by competitors through substitution as this would lead to decreased prices amongst others. Still on the issue of clients choosing air or ground transport, the non-substitutable principle applies. This is because apart from air transport, no other means of transport can be as fast. Therefore, competitors cannot provide an alternative to this business strategy. Rather, they would be forced to try and imitate it, further providing FedEx with competitive advantages. Contributionof Leadership to FedEx’s Success The biggest part of FedEx’s big success can be attributed to the former CEO and founder of Corporation, Fredrick Smith, who saw it grow until it attained international class. Deep in the history of FedEx lies a daring move he made to save it when one time due to financial crises I almost went down. He gambled with some 5,000 USD, the only money that the organisation had left between it and shutting down as they could not fuel their aircraft or vehicles (Brealey, Myers, & Allen, 2010). He won the gamble and thanks to his risk, FedEx stood firm, and from that time onwards has been on an upward trend. Smith saved FedEx that and many other times owing to his good leadership skills. Unlike most leaders who perceive of leadership as a complicated task, he defines it as simple and added that good leadership is created by supporting one’s subordinates. He demonstrated unique leadership abilities before FedEx when he served as a military platoon commander (Diel, 2012). This highlights the idea that he was born a leader, an occurrence explained by the Great Man theory of leadership. In it, leaders are people born with certain qualities such as intelligence, charisma, social skills, and confidence amongst others that enable them to stand out as leaders wherever he goes. Therefore, FedEx can be said to have succeeded because it was lucky to have found a leader with innate leadership qualities. In the case of gambling with 5,000 USD in company money, the move was possibly his own idea and no consultations were made. That move, as it stands, played a key role in transforming FedEx to the biggest logistics company in existence today. He also applied transformational leadership in that he treasured and created good relationships with his subordinates. In this type of leadership, the leader awards his followers accordingly, and is focused on group performance (Gilbert, 2012). These qualities enabled him to lead FedEx Corporation to success. Organisational Culture Smith seemingly extended his style of leadership to lower managers in that they emphasized on organisational culture as the necessity towards organisational success. In 2008, FedEx found an opportunity to showcase the effectiveness in organisational culture as a factor for success. Prior to their launch of the FedEx Nacional in Mexico, they embarked on a framework titled “360-Feedback” aimed at increasing the leadership skills of their managers as well as identify organisational contexts that required improvement (Realtime, 2009). The employees were asked to evaluate their leaders, and the leaders discussed measures of improving employee morale. By the time FedEx Nacional was launched, the following results had been attained from the 360-Feedback framework; there was higher employee satisfaction, lower turnover, and improved morale in the workforce. Conflicts within departments were solved, and the gap between managers and subordinates eliminated. The launch of FedEx Nacional succeeded, and it was part of the efforts that propelled FedEx to its exemplary overnight success. The 360-Feedback framework was effective in that it cultivated a culture of mutuality within FedEx by bringing together leaders and followers. In this way, factors that would otherwise limit the success of the corporation were addressed. Organisation culture is a determinant when it comes to organisational performance. As such, FedEx was right to have emphasized on it, as it played a key role in its success as a leading global logistics corporation. Innovation Strategy The continued dominance of FedEx in the global logistics sector is as a result of innovation which the director of FedEx innovation, Michelle Proctor refers to as “game-changing innovation” (FedEx Small Business, 2015). She adds that “…you must determine whether you’re trying to gain incremental growth for your business or trying to create a new market.” Innovation is intended to advance an organisation’s services or technology by developing or investing in further research. Innovation also acts as a means of gaining competitive advantage over competitors by using technology that they do not have. Technology plays a key role at FedEx in that information technology and logistics are two perfectly-intertwining contexts. One of the dominant applications of technological innovation at FedEx is the allocation of accounts to clients through which they can keep track of their packages. Additionally, these accounts enable one-on-one communication between the clients and FedEx, allowing for improved customer service, closer working relationships, and customer satisfaction. Such innovations were only available at FedEx but recently, their competitors have been trying to imitate some of them. Recently, the innovative FedEx Corporation invented EDEN (Equipment Detection, Event Notification) systems which are installed in their vehicles and at freight docks (O’Neil, 2014). The EDEN systems allow communication between truck drivers, forklift drivers, supervisors, and staff at delivery centers through touchscreen devices. The systems at freight docks automatically detect incoming truckloads and alert the staff at dock points on the expected arrival time and incoming load. The truck drivers in turn get alerts regarding open entry and parking spots, or where they are supposed to deliver their packages. Collectively, the EDEN systems create a universal network, which updates all protocols involved, leading to efficiency and competitiveness of course. This technological innovation, which is a first from FedEx is one of the many innovations that keep it ahead of its competitors. Future Risk Factors to Success E-commerce is working for and against FedEx. This is because as it goes viral, e-commerce has been increasingly becoming a threat to package and courier delivery services. This threat emerged when online stores such as Wal-Mart, Gap Inc., Best Buy Co., and Amazon decided to set up distribution warehouses closer to their customers. Such moves are aimed at cutting shipping costs as well as reducing the delay of delivery. The looming disaster is expected to hit in about five to 10 years, with FedEx, UPS, USPS, DHL, and related courier/ logistics service providers expected to experience a decline in business (Barr, 2013). However, there are still hopes in that the e-commerce stores cannot set up distribution centres at all customer bases. Additionally, clients will still require shipping done for large consignments that they cannot handle by themselves. To cushion itself against the expected business decline, FedEx should seek to create business partnerships with the e-commerce companies. They can go into partnerships such that their shipping costs are part of the product costs. In this way, the shipping would not cost as much as it does today. Additionally, since they already possess the export/import infrastructure, they can set up their own e-commerce stores. The reputation that they already have, in addition to their expansive distribution network will guarantee them a welcoming entry into the sector, thus promising success. The other challenge that FedEx is likely to face is an imitation from competitors (Hitt, Ireland, &Hoskisson, 2007). As was seen when they began tracking their packages, other courier service providers imitated them, and now tracing packages is becoming part of the business. Imitation is now more likely, especially after FedEx has become popular as a leading logistics brand. Their unique innovations such as the EDEN systems are likely to be duplicated, and that may mean their competitors will have risen to match them. To counter these, FedEx should desist from the habit of making all its business secrets public especially those with higher imitable potential. In the event that this is unworkable, then they can put more emphasis on research and further innovation so that by the time their competitors match their advancement, they will have made further strides ahead. If these two recommendations are implemented, then FedEx will extend its domination of the global courier/logistics sector uninterrupted by any form of competition. Conclusion The rise of FedEx to international glory in the courier sector took many by surprise in that compared to its predecessors, it took a shorter time. It employs 300,000 people and has over 600 aircraft and fleets of vehicles distributed all over the world. Its annual revenue is approximated at 45 billion USD and it has a net worth of 27 billion USD. Several factors have contributed to its success, such as perfect CSR, service level, product offering, working corporate culture, and winning the trust of its customers. Additionally, it has a well-defined value chain which has given it clear and sustainable competitive advantage unmatched by its competitors. Leadership has also played a key role in determining the success of FedEx in that as great leaders such as Frederick Smith set a strong foundation for success that has continued to boost the corporation further. Leadership at FedEx incorporates its employees in its organisational endeavours and this has created a common and united organisational culture that has led to sustained competitiveness and improved output. Innovation has also been proven to be part of the reasons why FedEx succeeded, and how it remains ahead of its competitors. Finally, the study has recommended that partnerships with e-commerce stores, setting up its own e-commerce stores, or retaining organisational secrets will solve the challenges that may hinder FedEx’s success. 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