Fedex Case Study Final Paper

Chaidir Abadi - s1488473

5 January 2015

Case Study – Final Assignment

FedEx Case Study – Final Assignment | Chaidir Abadi – s1488473

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1. Introduction

FedEx Corporation is a global courier and delivery service company which established in 1973.

FedEx is also known as the pioneer of the express transport and logistic industry that provides

next-day delivery services. Since its operation in 1973, FedEx had transform itself from express

delivery company to become the second largest global market share express and courier service

company with 14.2 percent based on revenue in 2014. (Bloomberg Businessweek, 2014).

Frederick Wallace “Fred” Smith is a founder, chairman and CEO of FedEx Corporation since

the company invented by himself from the beginning in 1973. He is a visionary leader who

believed that the there is an opportunity to company that could provide reliable delivery of time-

sensitive documents and packages. His vision based on the philosophy that wherever business

was conducted, there was a needed for movement of physical goods. Over 40 years, he has been

successfully lead FedEx Corporation through several strategies and transformation and led it to

become one of the biggest global company that operated in more than 220 countries around the

world.

During its development, FedEx has developed two main strategies which are build the

physical and virtual information infrastructure. Smith insisted that the company should acquire

its own transportation fleet compared to the competitor which were sub-contracting their

shipment to the third-parties. FedEx was also a revolutionary company that became the first

transportation company to launch a website in 1994.


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2. Problem Description

This paper is using a case from Faarhoomand and Pauline Ng’s paper whose title is FedEx

Corporation: Structural transformation through e-business. This paper is going to analyze what

strategies that had been conducted by FedEx and its position from the three different

perspectives based on Bob De Wit and Ron Meyer’s book: Strategy Process, Content, Context –

An International Perspective. First, what kind of strategic change refers the FedEx’s strategy and

analyze its position from the paradox of revolution or evolution framework’s perspective.

Second, what is the strategy that a firm develops in corporate level strategy and its position

whether it is relevant on responsiveness or synergy perspectives. Finally, what kind of FedEx’s

strategies that is correspond to the framework of globalization and localization perspectives.


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3. Analysis

3.1 Strategic Change

In order to run their business and achieve its goal to provide reliable and excellent delivery

and logistics services, FedEx had various strategies and corporate action taken by the company.

From just only provide express delivery services at the first time operated, until broaden its

services by acquisition Caliber System and launch five Subsidiaries Company with different focus

services and market segmentation. These strategies had changed in order to adapt to the

environment (market, competitors) and keep focus on its objectives. Strategic change are

directed at creating a new type of alignment – a new fit between the basic setup used to align

the firm with the environment (Bob De Wit, 2010).

Invented in 1973, FedEx is the first delivery company that provide express delivery services

with only overnight express delivery time. Its express delivery services revolutionized the

distribution and delivery industry. In 1994, FedEx also was the first transportation company that

launch a website with tracking and tracing capabilities. This revolutionary strategic was represent

the model of discontinuous renewal perspective that emphasis revolution over evolution.

At early stage of FedEx developments, Fred Smith, founder, chairman and CEO of FedEx has

visionary sight that FedEx had to build its own transportation and logistics infrastructure. He

insisted the company has its own transportation fleet. He had also established virtual information

infrastructure by develop a centralized computer system called COSMOS (Customer, Operations,

Service, Master On-line System) in 1979. This strategic renewal considered as disruptive

innovation. Its main two strategies was also a radical and comprehensive magnitude of changes

that can integrated transportation fleet and leveraged it by using IT Technology. This strategy

was also break with status quo because other competitor were focus on their business providing

delivery and transportation services and not acquire its transportation fleet by sub-contracting

their shipment to third parties. On one hand, FedEx was revolutionized delivery industry by

providing express next-day delivery services and became a leader on this segment using its own


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infrastructure. On the other hand, FedEx has to struggle with losses in the first three years of

operation due to its high investment in building its transportation infrastructure.

However, the period of turmoil had not taken too long, FedEx began gained profit from 1976.

This condition reflects the long-term renewal pattern that was episodic, but not gradual. The

period of losses were happened because of the revolutionary had taken in order to establish new

infrastructure of the company resulting stability after that and often called ‘punctuated

equilibrium’ – stability punctuated by episodes of revolutionary changes (Bob De Wit, 2010).

Discontinuous Renewal perspective

Continuous Renewal Perspective

Example

Emphasis on Revolution over evolution

Evolution over revolution

Its next-day delivery service revolutionized the distribution industry, pioneer web-based tracking system

Strategic renewal as

Disruptive innovation/turnaround

Uninterrupted improvement

set a few records with breakthrough technology

Strategic renewal process

Creative destruction Organic adaptation Inventor of customer logic management

Magnitude of change

Radical, comprehensive and dramatic

Moderate, piecemeal and undramatic

acquire its own transportation fleet, centralized computer system COSMOS

Pace of change Abrupt, unsteady and intermittent

Gradual, steady and constant

COSMOS, PowerShip System

Lasting renewal requires

Sudden break with status quo

Permanent learning and flexibility

Acquire its own transportation fleet, Implementation of IT system

Reaction to external jolts

Shock therapy Continuous adjustment

New Branding and extending brand FedEx to its subsidiary

Long-term renewal dynamics

Stable and unstable states alternate

Persistent transient state

Form subsidiary companies and change its brand within 2 years

Long-term renewal pattern

Punctuated equilibrium Gradual development

Express delivery business was maturing

Table 1 Discontinuous renewal versus continuous renewal perspective


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3.2 Corporate Level Strategy

According to the Corporate Level Strategy point of view, FedEx transformation can be divided

into two period that each period represent the different perspective whether its portfolio

organization or Integrated organization perspective. On January 2000, FedEx announced three

major strategic initiatives. This is the major changes on FedEx organization in term of corporate

level strategy that led FedEx from portfolio organization perspective into more integrated

organization perspective.

In 1998, after the acquisition of Caliber System, the company created a holding company, FDX

Corporation and formed five separate subsidiary companies: Federal Express, RPS, Roberts

Express, Viking Freight and FDX Logistics. Each subsidiary was managed independently with

separate sales force, accounting systems, customer service staff and IT resources. The conception

of this corporation represents the collection of business shareholding. Its organization structuring

criteria was output-based which is fit with business unit structure. The corporate composition

was diverse based on different customer base and product-market combinations being focused

on. This condition and organization structure are considered as portfolio organization

perspective.

Nevertheless, after announced three main strategic initiatives on January 2000, FedEx

launched its new branding strategy and changes the company’s name to FedEx Corporation and

extending the FedEx brand to four of five subsidiary companies: FedEx Express, FedEx Ground,

FedEx Custom Critical, FedEx Logistics and Viking Freight. Moreover, FedEx has also integrated

its point of access to sales, customer services, billing and automation systems by started up a

new company called FedEx Corporate Services Corp in June 2000. Even though each subsidiary

company continued operating separately, FedEx hopes that collective synergy solution would

help their customers to choose wide-range of product that can deliver by company and provide

competitive advantage for its future. This integration describes the emphasis on synergy over

responsive.


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FedEx Corporate Services Corp was also one of key success factor that synergize multi-

business strategy for each subsidiary company in one holding company, FedEx Corporation. This

company was focus on providing one stop service for customers by Integrating marketing, sales,

customer services, IT & e-commerce resources and invoicing, while other subsidiary company

could focus on delivering its delivery, transport or logistics services to its own clients. The

collective synergy of solution was implied the corporate management style that joint

development strategy. Another significant example of this strategy was the merging of two

logistics operations (Caliber logistic and FLEC) into FedEx Logistics.

Furthermore, in term of coordination between Business Units (subsidiaries), even though

it seems to be high and structural, some analysts questions whether the strategies that synergy

and integrate customers service into one stop door would work. At the time, FedEx operates each

delivery package with different team according to what types is ordered by the customers.

Although one customers would send various stuff for different type of order, the team from

FedEx that would pick-up the stuff could be different based on different type of order.

Fortunately, this issued had been address by starting a new service called FedEx Home Delivery

to meet and anticipated a growth in retail electronic commerce.

Although it can be seen that FedEx give an autonomy authority to each subsidiary company

to operate independently at the first time, after FedEx implemented its strategic initiatives and

integrated some of its function into new company (FedEx Corporate Services), FedEx faced a

challenge to developed the interdependent of its subsidiary company into one single point of

services. The multi-business synergies generated at the core of the organization should enable

the corporation to beat its competitors in a variety of business areas. Many different multi-

business synergies can form the core of the corporation (Bob De Wit, 2010). In FedEx case,

transportation and delivery services is the core of the corporation. On the other case, Cap Gemini

is the other example of company that provide wide range of business by offering an integrated

package of services, but still focus on aligning a variety of product offering for theirs ‘core

competences’ as one stop IT services provider.


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Portfolio organization perspective

Integrated Organization Perspective

Example

Emphasis on Responsiveness over synergy

Synergy over responsiveness

Launch low-cost residential delivery services, FedEx Home Delivery, FedEx Corporate Services Corp for synergy.

Conception of corporation

Collection of business shareholdings

Common core with business applications

Form 5 subsidiary companies

Corporate composition

Potentially unrelated (diverse)

Tightly related (focused)

Independent operation for each subsidiary company.

Key success factor

Business unit responsiveness

Multi-business synergy

First business responsive, later become multi-business synergy by formed FedEx Corporate Service, a one point of access to sales

Focal type of synergy

Cash flow optimization & risk balance

Integrating resources, activities & positions

Integrated marketing, sales, customer services, IT & e-commerce resources and invoicing as well.

Corporate management style

Exerting financial control

Joint strategy development

Merging Caliber Logistic and FLEC into FedEx Logistics, collective synergy of solution.

Position of business units

Highly autonomous (independent)

Highly integrated (interdependent)

First independent operation for each subsidiary, later each subsidiary highly integrated by one point of access to sales

Coordination between Bus

Low, incidental High, structural Different teams of delivery and pick-up staff for the different operations

Growth through acquisitions

Simple to accommodate

Difficult to integrate The acquisition of Caliber in 1998, reinforce FedEx's commitment to becoming more than just an express delivery company

Table 2 Portfolio organization versus integrated organization perspective

3.3 The International Context

Globalization is one of the three main trends that brought logistic and express delivery

industry (along with the IT technology and market demand for value added services). Almost all

company has been expanded their business as a result of globalization. As the basic philosophy


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as mention before that wherever business was conducted, there was always a needs of the

movement of the physical goods. The competitiveness of transportation companies highly

depended upon their global network of distribution and the ability to deliver to wherever their

clients conducted business. As of January 2000, FedEx served 210 countries that making up more

than 90% of the world’s GDP. Now FedEx has grown by serving more than 220 countries around

the world (FedEx Corporation, 2014).

Another major aspect that drives the global convergence of the company is the advances

in Information Technology (IT) and the application of new technology to generate process

efficiencies, reduce costs and improve customer services. FedEx also known as the pioneered the

Web-based package-tracking system because of the visionary of its founder, Fred Smith, which

has already built virtual information infrastructure as the basis infrastructure for the company

and believed that the core of FedEx’s corporate strategy was to use IT.

In the short run there will still be international differences and nations will not be fully

integrated into a world without borders (Bob De Wit, 2010). Therefore, firms thinking further

that the short term, should not let themselves be guided too much by current international

diversity, but rather by the merging global reality (Ohmae, 1990). In the past, each region

developed its own solution and operated in isolation. Under FedEx’s CIO, standard were set for

the development of the system of worldwide basis as organizational preferences.

One of the innovation invented by FedEx was Global Command Center, the central

nervous system of FedEx’s worldwide system in Memphis which operates 24 hours, seven-day

operation that provide efficient gathering and dissemination of real-time data. In addition,

through the IT groups located in Memphis, Leiden and Singapore, the company resolved to

developed global systems for worldwide implementation, with functions such as multiple

currencies and multiple languages, so all of FedEx office around the globe could operate with one

single global systems with no worries about international diversity in currencies and languages.

This innovation process was describe the centered for global as one of the global convergence

perspective’s factor.


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Global convergence perspective

International diversity perspective

Example

Emphasis on Globalization over localization

Localization over globalization

As of January 2000, FedEx served 210 countries (making up more than 90% of the world's GDP)

Major drivers Technology and communication

Cultural and institutional identity

Three main trend that brought logistics industry changes : advances in information technology (IT) and the application of new technology to generate process efficiencies

Diversity and fragmentation

Costly, convergence can be encouraged

Reality, can be exploited

By 1998, FedEx was a US$10 billion company spending US51 billion annually on IT developments plus millions more on capital expenditure

Strategic focus Global-scale synergies Local responsiveness Competitive transport for global network readiness

Organizational preference

Standardize/centralize unless

Adapt/decentralize unless

Under one CIO, standards were set for the development of systems on a worldwide basis, including vendor selection. In the past, regions developed their own solutions and operated in isolation

Innovation process

Center-for-global Locally-leveraged Through 1 24-hour, seven-day operation, called the Global Command Centre, the central nervous system of FedEx’s worldwide system in Memphis, FedEx was able to provide gathering and dissemination of real-time data efficient

Organizational structure

Global (centralized hub) Transnational (integrated network)

Through the IT groups located in Memphis, Leiden (Holland), and Singapore, the Company resolved to develop global systems for worldwide implementation, with functions such as multiple currencies and multiple languages

Table 3 Global convergence versus international diversity perspective


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4. Summary

Firm are complex systems, consisting of many elements, each of which can be changed

(Bob De Wit, 2010). FedEx Corporation, as the example of firm, has also changes to keep the

firm fit to the environment in order to achieve its objectives as business system by creating

value for costumers. FedEx is the first delivery company that provide express delivery services

with only overnight express delivery time and also was the first transportation company that

utilize IT technology as the core business system then launch a website with tracking and

tracing capabilities. This revolutionary and radical changes in delivery and transport industry

led this company considered as the discontinuous renewal (revolution) perspective rather

than continuous renewal (evolution) perspectives.

However, from the corporate level strategy perspective, FedEx has transformed during its

development stages from portfolio organization perspective after acquisition of Caliber

System and formed five subsidiary company into integrated organization perspective after

announced three major strategic initiatives on January 2000. This major changes strategic

lead the company to performed new integrated branding strategy to extend FedEx brand to

its subsidiary companies and form new company called FedEx Corporate Service to integrate

synergy all subsidiary companies into one stop services. After this transformation, FedEx

strategy more dominant for integrated organization perspective, even though part of its

strategy factor still considered fit as portfolio organization perspective framework.

Furthermore, as delivery and logistic company, the competitiveness of transportation was

highly depended upon their global network of distribution and the ability to deliver to

wherever their clients conducted business. Hence, FedEx was the example company that

mostly perfect to the global convergence perspective in term of the international context.


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5. References

Bloomberg Businessweek. (2014, November 10). Express and courier service providers' global

market share in 2014*. Retrieved from The Statistic Portal:

http://www.statista.com/statistics/236309/market-share-of-global-express-industry/

Bob De Wit, R. M. (2010). Strategy Process, Content, Context, 4th edition. Cengage Learning EMEA.

FedEx Corporation. (2014, 12). FedEx Corporation. Retrieved from Company Overview:

http://investors.fedex.com/company-overview/overview-of-company/default.aspx

Ohmae, K. (1990). The Borderless World: Power and Strategy in the Interlinked Economy. London:

Fontana.

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