Strategic Management of an Organisation - Research Paper Example

Table of Contents Executive Summary 2 1.0Introduction 3 1.1Introduction to the FedEx Corporation 3 2.0Development of Organizational Purpose 4 3.0Internal and External Environment Analysis 5 3.1SWOT and PESTEL Analysis 5 3.2Industry Analysis 8 3.3Competitive Advantage 9 4.0Strategy Development 10 5.0Strategy Implementation 11 6.0Conclusion 13 7.0 References 14 Executive Summary The purpose of this report is to apply strategic management concepts in context of a real life organization, where the strategies are formulated and implemented after a comprehensive strategic analysis. For this, FedEx Corporation is selected, which has a great name in USA especially and also working in more than two hundred countries. It is involved in the shipping business and a portfolio of segments, such as FedEx Express, Ground, Freight, and Services. The strategic analysis is performed by using SWOT analysis, PESTEL analysis, and also porter’s five forces of Competitive Advantage. The industry of the company is Shipping Industry, where it has a number of competitors, but the major competitor is UPS. The FedEx has major threats from its competitors, due to higher bargaining power of the buyers, higher prices and fixed costs. But it has invested much in capital, which has become the source of competitive advantage. A number of strategies are formulated and three are recommended for implementation, i.e. cost reduction, market development and bundling pricing strategies. These are recommended to lower the costs, increase revenues, higher ROCE, and also to compete with the rivals by lowering the prices and enhancing market share. The strategy implementation is discussed in terms of its issues and risks associated with strategies are also identified, such as disapproval from top management, labor union pressures, and business disruption.   1.0 Introduction With increasing competition and dynamic business environment, it has become quite challenging for the organizations to survive in this new environment. In such situation, the companies are using strategic management tools for analyzing their environment and competitive position in the market, so that they can develop and implement their business strategies to respond to the market and competitors effectively[ACA11]. Business strategy provide answers to important questions regarding the organizational current business position and future direction. In order to formulate the business strategy, there needs a comprehensive analysis of the company’s industry, markets, goals, resources, competencies, systems and structures[REd10]. The purpose of this report is to apply these concepts in context of a real life organization, where the strategies are formulated and implemented after a comprehensive strategic analysis. 1.1 Introduction to the FedEx Corporation FedEx Corporation was founded in 1971 by Frederick Smith, with the name of Federal Express, based in Little Rock, Arkansas. The company’s headquarters are in Memphis, Tenn. The founder’s business insights have been appreciated throughout the years, and after facing a number of financing difficulties, the company kept on striving for its survival. In 1998, the company announced its initial public offerings and then in 2000, it became a corporation with the name of FedEx Corporation[Fed14]. The company provides mix of services with the corporate name of FedEx, such as business services, e-commerce, but majorly the transportation services. 2.0 Development of Organizational Purpose The organizational purpose defines the strategy statement of the company. The strategy statement involves the mission, vision, and values of the company, which are important to set before crafting the strategies for the organization[Bry97]. Underneath, the mission, vision and values of FedEx Corporation are described. Mission statement: “FedEx Corporation will produce superior financial returns for its shareowners by providing high value-added logistics, transportation and related business services through focused operating companies. Customer requirements will be met in the highest quality manner appropriate to each market segment served. FedEx will strive to develop mutually rewarding relationships with its employees, partners and suppliers. Safety will be the first consideration in all operations. Corporate activities will be conducted to the highest ethical and professional standards”.[Fed141] Vision: The FedEx has envisioned itself for 2016, where the company will have 1 trillion dollars of estimated worldwide e-commerce sales in 2016, signifying the 1% of international GDP. And also it has estimated a 42% increase in US online expenditure in 2017[Fed131]. Values: The FedEx Company value its employees and their opinions, where it manages a workforce diversity in order to foster innovation. For the service side, the company puts its customers at the highest priority. Major values of the FedEx Company are the innovation in technology and services, integrity in finances and operations, responsibility of the societies and environment, loyalty for customers, employees, and shareholders, and safety for the customers, employees and equipment[Fed141]. The development of mission, vision, and values is the first step in the strategic planning, where the firms has to develop a direction in which the firm has to go. The importance of this first step is of high significance, as no other steps in strategic planning and implementation will matter if the organization has no direction where it is journeying[Hin12]. So, this provides the main route to go further. 3.0 Internal and External Environment Analysis This section of the report deals with the company’s industry analysis, the internal and external environment analysis, and its basis for competition, using strategic management tools. 3.1 SWOT and PESTEL Analysis For the external and internal analysis of the company, the SWOT matrix can be used, which provides answer to the question that either the company has such resources and capabilities (internal environment) which can be used to exploit the opportunities and avoid the threats (external environment)[Nad07]. But it is criticized for its oversimplification and subjective way of analysis, and it ignores many important business issues and macro-factors, such as inflation and governmental regulations[Hel10]. SWOT Analysis Strengths Unbeatable brand Image Efficient infrastructure and assets like planes and aircrafts. Good management of Hubs locations and Routes planning Well-developed research and development side fostering innovation God ranking in industry with respect to the consistent operations over a number of years Widespread capital investment High focus on customer needs Pioneer in making websites and online tracking of orders Leader in local express market First mover advantage in express transportation company Weaknesses Greater pricing with respect to the competitors Weak position at global market Lagging behind competitors in terms of its ground delivery services Claims to be differentiated , but not to UPS, as UPS has a head to head competition with it Highly vulnerable to the economic situations and fuel rates Lower market share as compared to the competitor High Fixed-cost due to continuous investments in capital Increasing unionization (pilot unionization) Opportunities The recovering economy especially for Asian market Less governmental interference in expansion to more markets Sustained globalization in the international market can create availability of more deals with greater volumes Growth of e-commerce with the passage of time and online order placing websites can create demand for on-time, stress-free shipping, and expansion possibilities Higher fixed costs for infrastructure for express delivery can maintain its leadership in express delivery business Threats Greater fixed costs of the maintenance of infrastructure for express delivery Capital investments are made by sales revenues, so high fixed costs can harm the profits Impossibility of becoming a market leader in shipping industry Lower ROEC due to the nature of shipping industry The e-business requires lower shipping prices and rates to attract the customers Competitive threats due to higher prices and lower revenues, from UPS and DHL, Figure 1. SWOT Analysis. Source[Nad07]: A number of factors ignored by the SWOT Matrix can be explained by use of PESTEL Analysis, which can provide a big picture of the company’s market[Ger06]. PESTEL Analysis Political Opportunity: FedEx has permits to deliver its services to other markets than the USA only, for expansion Threat: The competitors of FedEx are mostly state owned with more access to resources, and lower costs and profit vulnerability with favorable business conditions than FedEx. Technological Opportunity: the development of IT infrastructure and aircraft technology offer better services, more collaboration with the customers, opportunity to deliver efficiently and with minimum costs. Threat: higher costs involved in the acquisition and maintenance of IT infrastructures and the complexity involved. Economic Opportunity: Better economic conditions, like increasing GDP rates in USA, increasing globalization and integrated markets, are boosting the economic growth. Threat: The high volatility in the fuel prices and increasing costs of carriage safety and insurance. Environmental Opportunity: Use of recycled products and environment contribution Threat: the increasing concerns of environment sustainability among communities and relevant authorities, and high-cost to employ environment friendly technology. Socio-cultural Opportunity: the change in the consumers’ behaviors, increasing trend of online shopping and e-commerce Threats: more options available to consumers, less-tolerant to the bad services and greater expectations for the services, demand for more customized services. Legal Opportunity: The reduction in the legal barriers Threat: The changes in the tax policies, environmental and safety regulations Figure 2. PESTEL Framework. Source: Author 3.2 Industry Analysis Before formulating an effective strategy, it is important to analyze the industry where the company is operating and also the competitive forces impacting on the company’s business[Mic81]. The main industry is the shipping industry, where it has four major segments; FedEx freight, FedEx Ground, FedEx services, and FedEx Express. The company is working in more than 220 countries and majorly in USA and Europe. There are more than 300,000 employees working in 1,800 offices established [Fed141]. The company’s major competitors for FedEx are UPS, DHL, USPS, FCML Couriers, Royal Mail, and LDH Express. For the competitive analysis of the company, the five forces model given by Michael E. Porter is used. Porter (2008) has argued that this model provides the sources of competitive advantage or disadvantage, and the managers can assess options that are in the best interest of the company[Mic08]. The model is criticized on the basis its key assumptions of static market, and also the scope of application, and its development in early eighties[Kar05]. Following model presents the five forces. Figure 3. Porter’s Five Forces Model. Source: [Mic08] Threat to New Entry: (low to moderate) As there is higher fixed costs related to global shipping network and infrastructure required to compete, and the strong brand names of already existing competitors; UPS and DHL. Rivalry Extent: (High) Existing competitors are involved in the fierce competition for market share, which can be seen as the constant rivalry among UPS and FedEx. Rivals have to focus on the continuous enhancement in quality of service, dropping prices, and innovative packages, as the switching costs are very low. Moreover, the higher fixed costs in up keeping technology can be the exit obstacle. Buyer Power: (high), as the switching cost is very low. The consumers can switch to other providing quality services, lower rates, and convenience. Suppliers Power: (low), as the companies in shipping industry purchase in bulk and can switch to other suppliers with lower rates. Substitute Threats: the threats of substitutes to the transportation service is low, as this service cannot be replaced easily. 3.3 Competitive Advantage FedEx is not the market leader, and has not much unique competencies. It has four main sources of competitive advantages; a) Its brand equity, where customers use the word “FedEx it” in spite of “ship it”. b) Its large investments in capital and infrastructure building, providing quality service with updated technology that is hard to copy. c) Its devotion to innovate and bringing new technological upgrades. Also, the FedEx have competitive disadvantage over UPS in number of regards, such as lower return on equity, lower revenues, and has similar advantage on the basis of quality of services[ElK05]. 4.0 Strategy Development In response to the above analysis of FedEx, following strategies can be crafted for the FedEx. a) Cost Reduction Strategy: The FedEx has been facing a decline in revenues and ROCE (9.7%) from previous years and also it is lagging behind from its competitors, so there is need to develop a strategy to increase this return by efficient use of capital employed. The company has high fixed costs due to higher capital investments. There must be full capacity utilization with proper training of employees and the elimination of non-generating cost elements, so as to get most out of its capital employment[Lin09]. With decrease in cost, the revenues and EBIT can be increase, resulted in higher ROCE. b) Differentiation: which is already being pursued by FedEx, but there is need to modify this strategy to compete with its competitor. As the differentiation is important for fierce competition. FedEx has to differentiate on the basis of its service level to compete with UPS. c) Competition pricing strategy: FedEx has higher prices in comparison with its competitors, so a pricing strategy needs to be modified, where the FedEx has to lower its prices to gain more market share. More market share can offset the loss incurred by reducing prices. It is also important in the industry where bargaining power of buyers is high. d) Bundle Pricing Strategy: In this strategy, FedEx can bundle up its different services with lower prices, where it can use to leverage the sales of FedEx ground segment by bundling its services with the FedEx Express services. This will provide two benefits; lower prices, and increasing sales and revenues[Tor00]. e) Market development strategy: where the FedEx needs to target new customer segments and new markets on region basis, such as Asian markets. It is a time to increase its market share in international market, where there are more opportunities rather than US. The company can enter into lower cost regions, to access low cost labour and resources. f) Resource Based Strategy: the FedEx can have a long term success by using the resource based strategy, where the company has to keep on up grading its infrastructure to beat the competitors in long term. Due to head-to-head competition with the UPS, it is a good competitive strategy. g) Acquisition strategy: The acquisition strategy can be pursued to increase market share and customer base, which can be a competitive strategy in order to compete with UPS. 5.0 Strategy Implementation For implementation, it can be suggested that FedEx should pursue cost reduction strategy by using the full capacity of resources as well as by eliminating the cost elements which are giving no revenue. The company has been investing much in its capital, which should be now utilized. It should also pursue market development strategy to enter into more markets, which is important for increasing market share and hence to compete with its major competitor UPS. In combination with these, the company should also need to modify pricing strategy, where it should employ the bundle pricing strategy. It is important to lower the prices as compared to rivals, to increase revenues/ sales, and to gain more market share. There could be a number of issues come in way of implementation of the strategies, which has to be effectively handled in order to achieve successful implementation[Pau04]. However, the major implementing issues in executing the suggested strategic initiatives can be the disapproval from top management and employees. Another issue which may arise is the pressure from labor unions, as the company may have to downsize the workforce to cut the costs. The routine business activity may be disrupted while implementing these, so to implement these initiatives, there is need of a proper team and employees’ commitment towards it. Risk management is another important consideration in strategy implementation process, which must countered back[Tzv02]. There are three major risks associated with the strategic initiatives, human resource risk, risk of lower returns and non-performance. The human resource risk is associated with the cost reduction through downsizing, where the labor union can create an issue. This can be handled by proper negotiation with the employees and providing good compensation for these. The bundle pricing strategy should be employed with proper consideration of customer needs to lower the chance of non-performance, for example the combination of services should be complementary. The market development may pose the risk of lower returns in other markets, for that purpose, proper analysis needs to be performed before entering, where the low cost labor is available, such as Asian countries would be majorly focused. 6.0 Conclusion The report has presented the strategic management aspects with the context of the FedEx Corporation. In this report, on the basis of the strategic analysis of the FedEx with the help of strategic management tolls (SWOT, PESTEL, Porter’s five forces Model), the strategic initiatives are proposed, and selected for implementation. Then the issues and risks involved in implementation are discussed and strategies are recommended for successful implementation. 7.0 References ACA11: , (Amason, 2011; Lynch, 2012), REd10: , (Freeman, 2010; Wheelen, et al., 2010), Fed14: , (FedEx Co., 2014), Bry97: , (Bryant, 1997), Fed141: , (FedEx, 2014), Fed131: , (FedEx Inc., 2013), Hin12: , (Hinton, 2012), Nad07: , (Pahl & Richter, 2007; Manteghi & Zohrabi, 2011), Hel10: , (Helms & Nixon, 2010), Nad07: , (Pahl & Richter, 2007), Ger06: , (Hodgkinson, et al., 2006), Mic81: , (Porter, 1981; Lynch, 2012), Mic08: , (Porter, 2008), Kar05: , (Karagiannopoulos, et al., 2005; De Man, 1994), Mic08: , (Porter, 2008), ElK05: , (El-Khamy & Golubov, 2005), Lin09: , (Holbeche, 2009), Tor00: , (Olderog & Skiera, 2000 ), Pau04: , (Dobson, et al., 2004), Tzv02: , (Raz, et al., 2002), Read More