The Evolution of the Small Package Express Delivery Industry, 1973 – 2010.
The prime idea behind the establishment of a business venture is to earn returns in the form of profits. Business operators often employ a myriad of strategies to ensure that the profitability of their venture is intact. However, despite the many strategies, external factors such as competition and changes in market trends always affect the returns (Hill & Jones, 2012). As the internal and external factors that affect businesses change with time, the leadership has no option, but to keep searching for new and better strategies to keep up with the changes. This trend is evident in the history of Federal Express as it pioneered the development of the small package delivery industry (Hill & Jones, 2012).
This essay explores the journey of Federal Express between 1973 and 2010 in a bid to outline the major strategic management issues that manifested during the journey. It also endeavours to outline the crucial aspects of strategic management that could increase the fortunes of Federal Express if adopted.
Federal Express’s Value Creation Frontier
In its four decades of existence, Federal Express has gone through both good times and bad times. Competition, market trend changes, and economic downturns are just a few of the challenges this organization had to contend with to reach its current status. It started as the pioneer in the small package express delivery industry in the U.S. and remains a market leader today. Many competitors have tried to remove it from the market leadership position, but their efforts have not been successful. This state of affairs implies that there are mechanisms, which Federal Express uses to ensure that it maintains its position in the market.
According to Hill and Jones (2012), Federal Express was, on several occasions, embroiled in price wars with its competitors. For instance, the entry of United Parcel Services (UPS) and Airborne Express into the small package express delivery industry instigated serious price wars that drove unstable competitors out of business leaving only the well-established players (Hill & Jones, 2012). There are several other instances where Federal Express embraced price-cutting as a competitive strategy. Apparently, during its four-decade history, this organization has on several occasions attempted to employ cost leadership as a competitive strategy.
However, this approach has not been successful because despite being a market leader in the U.S., Federal Express trails its competitors insofar as cost leadership is concerned (Amsler, Cullen & Erdmenger, 2010).
Another strategy that Federal Express has employed in its value creation endeavours is differentiation. The organization has endeavoured to depict itself as a reliable player in the small package express delivery industry. Consequently, it currently enjoys an unmatched reputation for on-time deliveries (Amsler, Cullen & Erdmenger, 2010). Additionally, it is well known for its focus on customer satisfaction. These characteristics combine to give Federal Express a strong brand image. However, despite being a market leader in America due to its strong brand image, the company’s service offerings are not distinctively differentiated from the services of its key competitors such as UPS (Amsler, Cullen & Erdmenger, 2010).
Federal Express’s value creation frontier does not place it in a position of advantage in comparison to its major rivals. Apart from its strong brand image, there is no other feature that sets it apart. Therefore, it draws its strength from efficiency, quality, and customer responsiveness, but it is largely lacking in innovation (Bate & Johnston Jr., 2005). Apart from being the pioneer of the small package overnight delivery industry, almost all the other advancements that took place in this industry originated from its competitors (Hill & Jones, 2012). As such, Federal Express would benefit massively from placing more emphasis on innovation.
The Main Aspect of Product Differentiation and Capacity Control
Since it successfully positioned itself as the most reliable player in the small package express delivery industry in the American market, Federal Express can achieve a similar feat by becoming innovative to differentiate its services from what competitors offer. However, the company should be cautious to ensure that it focuses on a type of differentiation that is consistent with its current industry standards. Federal Express has featured in several lists as one of the best companies in America (Amsler, Cullen & Erdmenger, 2010). Arguably, the good reputation it has indicates that the quality of services it offers is not questionable.
Therefore, it can take advantage of its good reputation and launch a massive vertical differentiation campaign that anchors on its timely and reliable package delivery services. This industry is so sensitive that if Federal Express streamlines its operations to ensure that no package ever falls behind schedule, it can successfully place itself ahead of all competitors. This assertion is motivated by the idea that this industry values timely deliveries. The quality of service in this industry is determined by the promptness of package delivery and good customer relations (Amsler, Cullen & Erdmenger, 2010). As such, if Federal Express places more emphasis on promptness, it will be in a position of advantage because currently, one of its core strengths is its customer responsiveness (Amsler, Cullen & Erdmenger, 2010).
Efficiency in the Federal Express Business Model
Federal Express is a global shipping and solutions organization that serves businesses and individuals across the world (Amsler, Cullen & Erdmenger, 2010). It operates under the names FedEx Express, FedEx Ground, FedEx Freight, and FedEx Services, which combine to form the FedEx Corporation (Amsler, Cullen & Erdmenger, 2010). Each of these subsidiaries specializes in a different area of the package delivery industry. They strive to be market leaders in their different areas of specialization. The synergistic effect that results from their collective effort is responsible for giving Federal Express the impeccable reputation it has.
Federal Express is a global platform that allows people and organizations to send and receive packages through its apparatus. It creates value for both the consumer and the producer (Amit & Zott, 2012). Its extensive ground and air networks ensure that the value creation is done seamlessly. In locations where it does not have the direct reach, it works in conjunction with other players to deliver its packages. It also does the same for industry players that find it useful in the same sense.
It should, however, be noted that Federal Express focuses too much on the express delivery and transportation segment of its operations. It is a global leader in this segment and earns up to two-thirds of its total revenues from the same (Amsler, Cullen & Erdmenger, 2010). There is a problem with this approach because any slight disturbance in this segment has the potential to adversely affect the overall financial well being of the organization.
Its over-emphasis on a price intensive segment of the industry also makes it susceptible to changes that make customers price sensitive (Coulson-Thomas, 2013). Therefore, although Federal Express is doing considerably well with its current business model, there is a need for the organization to alter its approach to become more stable. A more balanced approach in which the organization spreads its weight across all its areas of operation would be more plausible.
Possible Impact of Overall Global Competition on the Proposed Business Strategy and how to Confront the Competition
An attempt to balance the operations of Federal Express will be an uphill task because it will require the organization to upscale other services to match the express delivery service or downscale its express delivery service to the level of other services. While it is more plausible to upscale the other services than to downscale the express delivery service, earlier attempts by the organization to register a stronger global presence failed.
It was forced to sell its European ground network after several consecutive years of losses occasioned by the frustrations that characterize international markets (Hill & Jones, 2012). However, Federal Express still has the potential to replicate its success in the express delivery service in other areas. The organization only needs to be more aggressive and persistent because its biggest domestic rival, UPS, followed the same path and currently enjoys a more extensive reach outside America (Hill & Jones, 2012).
Conclusion
In conclusion, there is room for all industry players to expand their operations as the world opens up further. For example, if Federal Express strengthens its presence outside America, the entry of other players in the American market will not affect it much. Thus, it should strive to ensure that it balances its operations in the domestic and international markets as well as across all its areas of operation.
References
Amit, R., & Zott, C. (2012). Creating value through business model innovation. MIT Sloan Management Review, 53(3), 41-49.
Amsler, M., Cullen, J., & Erdmenger, JC. (2010). Strategic Report for FedEx Corporation. San Diego, CA: The Ector Group.
Bate, J., & Johnston Jr., R. (2005). Strategic frontiers: The starting-point for innovative growth. Strategy & Leadership, 33(1), 12-18.
Coulson-Thomas, C. (2013). Implementing strategies and policies. Strategic Direction, 29(3), 33-35.
Hill, C., & Jones, G. (2012). Strategic management: An integrated approach (10th ed.). Mason, OH: Cengage Learning.