FedEx Corporation: Structural Transformation Through E-business

Executive Summary

This report provides a critical analysis and evaluation of the strategy development in the global transportation and logistics industry concerning the case study of FedEx Corporation. The analysis is done on the use of Porter’s Five Forces and Porter’s Value Chain techniques as well as Whittington’s ‘Classical’ and ‘Evolutionary’ Schools of Thought. In this respect, the report recommends the adoption of evolutionary schools of thought. Evaluation of the core competencies and capabilities is done with a critical review of the advantages and disadvantages of international trade. Further, the report evaluates the four loops in the integrated model of decision-making and control.

Introduction

FedEx Corporation has focused on customer-based approaches to transform itself from an express delivery company to worldwide transportation, global logistics, and supply chain Solutions Company, with heavy reliance on e-business. This report is a critical analysis of the corporation mainly on the reasoning behind its success factors based on a review of questions presented.

Explanation of Porter’s Five Forces and Porter’s Value Chain techniques and their relevance to strategic planners of FedEx Corporation

Porter’s five forces model is a simple but strategic tool that helps in the identification of forces that influence the level of competitive advantage of a company in the business environment (Chen, et al. 2002). According to Porter (1985), the five forces are entry threats to new competitors, the bargaining power of customers and that of suppliers, rivalry among firms in the industry, and threats from substitute goods or services. This model is useful in strategic planning through the use of methods such as cost differentiation, redefinition of products, selection of buyers, and price changes among others (Lynch, 2006). Porter’s value chain model focuses on increasing the level of competitive advantage of a firm through reorganization of its activities that relate to creation, support systems, and delivery of the products or services of a firm (Porter, 1985). It mainly entails primary and support services to achieve competitive advantage through lowered costs or adding value to products or services to influence the pricing mechanisms that buyers are willing to pay for (Lynch, 2006).

FedEx Corporation has a rich history of adopting the strategy of innovation. It utilized porter’s five force model and value chain techniques to attain a competitive advantage. FedEx Corporation focused on the bargaining power of customers through the adoption of a corporate culture focused on maintaining superiority in customer service, timely delivery of services, providing customized solutions in transport, warehousing, and logistics to customers, and rebranding of its name to FedEx Corporation. The focus on the customer for FedEx was influenced by its vision which is “satisfying worldwide demand for fast, time-definite, reliable distribution” (De Wit & Meyer, 2004, p.650). This required the customer-based approach with the buyer having high bargaining powers and the ability to switch companies. The large groups of FedEx subsidiaries and quality services helped in this. Further, FedEx relied on providing threats to new entries through the incorporation of strong asset-based services which means that new entrants had to bear high costs and expensive operations which minimized their number.

The intensity of rivalry in the parcel industry forced FedEx to make use of the increased speed of delivery through in-time systems and technology, efficient delivery and prices, and the creation of a strong brand to maintain a high market share. The bargaining power of suppliers was maintained high because the equipment and material involved in the operation such as planes, vehicles, and computers are costly and require good management to provide efficiency. Hence, FedEx maintained good relations with suppliers to cut down on costs as well as to get quality products. The services that FedEx is involved in of delivery service can be substituted easily hence FedEx sought to maintain good customer service.

The use of Porter’s value chain model for FedEx was possible through the addition of value to the customers rather than cost reduction because of the high costs involved in the operation. The value to customers was added through the incorporation of technology to provide on-time and real-time service delivery and advancement of e-business within its networked economy (Chen et al. 2002). Value was emphasized in its primary activities such as improving both inbound and outbound logistics, operations efficiency, marketing, and service concentration on the customer. In the support services, FedEx had the advantage of technological advancement, efficient procurement, a good infrastructure, and a management structure. All these were also made easier through the brand strength.

Core competencies and capabilities brought about strategic transformation at FedEx Corporation between 1973 and 2000

FedEx Corporation was based on innovation, customer satisfaction, and the embracing of technological advancement (De Wit & Meyer, 2004). It focused on market leadership through establishment of brand strength, continuous research to identify the customer needs and ensure their satisfaction, good use of Porter’s five force model and value chain techniques, and maintaining good relationships with various stakeholders in the industry such as suppliers and the community (Lynch, 2006). FedEx Corporation was formed on a background of innovation which it still uses as a business strategy and as part of its culture. This is evident in the installation of computers in delivery vehicles, development of tracking software and capabilities, and provision of automation to corporate mailing services (Hemmatfar, 2010). In 1994, FedEx was the initiator and leader in offering package status tracking and shipping services which provided convenience and increased customer services. Additionally, it was the pioneer in the use of wireless technology and shipping through the introduction of the Digital Assisted Dispatch System (Hemmatfar, 2010).

FedEx has improved its innovation capabilities in pursuing and developing solutions for customer service through the establishment of an innovation lab. This is a research and development house that focuses on advancing optics for robotics, scanning, social networking, and pervasive computing among others (Lynch, 2006). Further, capability has been enhanced through the establishment of the FedEx institute of technology. FedEx boasts of competencies in its massive use of information and technology. Through this, the company was able to acquire a transportation fleet of its own, install computers and software that allowed customers to link and log in to their ordering and tracking system. Further, FedEx has capacities of tightened order delivery cycles, efficient management of inventory through just-in-time systems, and safety capacities through tracking systems. FedEx also has synchronized production systems and customized logistics, warehousing, and transportation solutions to cater to individual customers due to its flexibility. FedEx has maintained competency in its supply chain solutions which allow for global distribution and continuous flow hence it’s streamlining (Lynch, 2006).

FedEx has maintained good management and organizational structure which has allowed it to focus on customer service while harnessing new technologies to enable it cut levels of inventory and shorten the delivery cycles. The management capacities have provided vision, leadership, and courage to take risks as a pioneer in the industry. Further, the management style has encouraged creativity and innovation through employee satisfaction to spill over to the customers (Whittington, 2000). Additionally, FedEx has focused on efficient marketing strategies by making customers aware of its efficiency and in-time delivery services by building a strong brand and maintaining the brand name for all its subsidiaries (De Wit & Meyer, 2004).

The main advantages and disadvantages of international trade to FedEx Corporation

The international market provides a global growth opportunity for FedEx Corporation which has its advantages and disadvantages mostly based on its strengths, opportunities, weaknesses, opportunities, and threats (Whittington, 2000). FedEx is to benefit from the employees and other stakeholders from different global cultures who have different viewpoints hence providing more advice and ways of doing business suited for each global market. FedEx Corporation has the advantages of global trade due to the growth of the global industry. International trade is likely to increase the returns to FedEx thus increasing its level of profitability owing to the growth in global demand. Operating on an international basis is likely to increase the customer base of FedEx due to the larger market covered. This in return would influence its global influence hence strengthening the brand name of the company. Dealing with such a large geographical area is likely to increase the levels of customer satisfaction since the service would not be limited to their geographical location. Further, FedEx has the advantages of improving its technological capacity to suit large areas hence minimizing the cost of operation (Chen et al. 2002).

Despite the major advantages accruing to the global expansion of FedEx, the challenges would not be inherent. The main ones would include increased competition and rivalry which is fostered by the benefits the global market presents (Lynch, 2006). FedEx is also likely to face high costs due to the initial costs required and opposition from local companies which oppose foreign domination. The differences in the legal structures and requirements and taxation policies in the global market vary from one country to another which limits the freedom of FedEx. Additionally, FedEx is also likely to face security challenges and protection of its brand since more companies would be willing to use or misuse its name while the challenge of safety of the technological system is present (Hemmatfar, 2010).

Whittington’s ‘Classical’ and ‘Evolutionary’ Schools of Thought in the context of strategy development at FedEx Corporation from 1973 to 2000

Whittington (2000) came up with different schools of thought such as the classical, evolutionary, and processual schools among others. The schools form a basis for management thought, decisions, and analysis for strategic alignment. The classical view regards maximization of profits as the main goal of the business which it asserts can be achieved through planning deliberately. Classical economists argue that the achievement of this goal lies with the ability of the management to organize plans and actions that are specific enough and relate to all levels in the organization (Lynch, 2006). Proponents of this school further emphasize that managers have to have a capacity and readiness in the adoption of strategies to maximize profits by use of long-term planning rationale. The company adopts proactive approaches to forces in the market with a well-defined mission statement and objectives (Hemmatfar 2010).

In the context of FedEx Corporation, the classical strategic view has been extensively applied (De Wit & Meyer, 2004). Lynch (2006) asserts that through the years, FedEx Corporation has been aiming at achieving market leadership. This it had planned to achieve through maintenance of sustainable profitability as the main target. Riald (1996) points out that FedEx had strategies such as application of information systems and technologies, aggressive marketing, and strategy-based initiatives of management which all aimed at profit maximization through cost reduction and improved customer service. Additionally, as De Wit & Meyer (2004) assert, the crucial highlights of FedEx Corporation were all motivated by the desire to continue operating with records of higher profits. These included the airline deregulation of 1977 which boosted fuel growth, the competition and wars in prices of the 1980s, the pursuit of market dominance in the 1990s, and the maintenance of the same.

Whittington (2000) argues that evolutionary thought takes into account the dynamic nature of market factors hence the need to consider them in decisions adapted through advanced prediction of environmental changes and taking advantage of the opportunities provided. Lynch (2006) asserts that in this view, the survival mechanism has competition playing a major role in this. This view is suited for an environment that is rapidly changing since it provides the opportunity for the development of tools for dealing with evolving opportunities and threats while still providing a balance between exploration and exploitation of the crucial market indicators. Whittington (2000) asserts that evolutionary thought does not ignore the profit-maximization goal but rather it incorporates the same with an emphasis on environmental changes and day-to-day planning and short-term perspectives that consider this. Lynch (2006) states that this strategy requires investment in research for prudent readjustment and may involve high costs. In the era of globalization, Lynch (2006) emphasizes that this strategy allows companies that are willing to take advantage of global growth, technological advancement and can counter high competition for benefits.

In the context of FedEx Corporation, this view is so much upheld in its capacities of innovation, technological advancements, and customer service (De Wit & Meyer, 2004). This is revealed through its pioneering in the innovative use of technology such as in-time systems, tracking systems, is the initiator and leader in offering package status tracking and shipping services, and the increased size of its operation to 210 countries. Additionally, FedEx uses this view through constantly reviewing and analyzing evolving technologies, focusing on integrating existing systems, effectiveness in staging organizational and technical changes, the huge initial investment in issues of non-technical nature such as end-user training and adoption of e-business in the 1990s (Hendry 2000). Further, FedEx has used evolutionary theory through its increased focus on innovation by the adoption of innovative labs for market research and the establishment of the FedEx Institute of Technology (Lynch, 2006).

Critical evaluation of the application of the two Schools of Thought to FedEx Corporation

The Classical school of thought has a point of view that profit maximization is the main aim of the business which is achieved through long-term planning (Whittington, 2000). The advantage of this view with application to FedEx Corporation is that it would allow the company to make profits and track down its investment to benefit from maximum returns. This view would provide planning of its expenses and returns to ensure that maximum returns are achieved (Lynch 2006). It would be applicable due to the high costs involved and the market leadership already attained. Unlike the classical theory, the evolutionary view takes into consideration environmental changes by noting the threats and opportunities (Whittington, 2000).

In this view, FedEx Corporation would require more research to obtain global market strategies that are market-based and differ from the cultural setting of the same (Hendry, 2000). It would need to incorporate more information technology in its systems and more customer research before implementing the systems. Further, it would be recommendable for FedEx to make use of more technological systems that allow for the monitoring of the operations and plans of the competitors as well as using technology to find more ways of reducing costs to maintain market leadership. Additionally, the use of the innovative laboratory and the FedEx Institute of Technology needs to be improved to provide for applied research on the provision of better services and products as well as setting up feedback systems that allow for review of customer satisfaction (Hemmatfar, 2010). It is further recommendable for FedEx to make use of this view due to the threats of rivalry and competition. The company needs to set up security measures that ensure that the system cannot be hacked, tampered with and that crucial confidential information is not leaked out. Further, FedEx requires a Service Recovery Application and the strengthening and protection of its brand name (Lynch, 2006).

The evolutionary thought is the most applicable to the case of FedEx Corporation. This is due to its massive benefits mentioned earlier as well as the business environment. FedEx boasts of strengths such as market leadership, pioneering, and being an ahead starter in the industry as well as faster clearance of customs which all require maintenance through adjustments and research based on efficient customer service to get their loyalty and attract more customers (Hendry, 2000). FedEx is faced with opportunities for global expansion, upgrading logistics and distribution services, buying more technological equipment, and improving ground delivery. Due to the differences and the critical dynamic global market nature, this would require short-term and market-based planning which is only possible through evolutionary thought (Ng, 2000). FedEx is further faced with the threats of high competition from competitors who wish to offer higher speed and better prices, pressures of customer retention, the rise in gas prices which requires more than just long term planning but short term planning through research, effective strategies, and the building and development of the brand to counter competition which is all evolutionary measures. The weaknesses of competition and increased demand require FedEx to base its decisions on reliable information and to take advantage of the demand which would be influenced by short-term market-based strategies. Although classical thought is efficient in ensuring profit maximization, the long-term benefits of customer loyalty are minimized since the quality of products as well as customer satisfaction are not given priority (Chen et al. 2002).

Critical evaluation of the implications for strategic management of each of the four loops of the integrated model of decision-making and control

The processual school of thought views people rationally while organizations are individual coalitions with the individuals bringing their perspectives, cognitive biases, and personal objectives to the organization (Riald, 1996). The proponents of the school further argue that the strategies used in business require planning, follow-up actions, and making sense of the world’s chaos. This requires emergent actions that are usually environmentally stimulated (Riald, 1996). Ronald points out that the rational loop in decision-making means the adoption of behavior patterns for the maximization of benefits and minimization of costs. In strategic management, planners have to make rational decisions especially in the entry of the global market that provides the highest returns while incurring the least costs (Lynch, 2006). Further, they have to make use of systems and efficient technologies that allow for this (Hemmatfar, 2010).

The culture and cognition loop states that culture orientation shapes the thought patterns (Riald, 1996). Therefore, in the strategic management of FedEx, consideration has to be made in the development of global entry strategies that are acceptable to the country it wants to enter. This would incorporate the marketing strategies to adopt measures that stimulate and capture the attention of the people. The means used and the meaning of words should apply to the culture (Lynch, 2006). Further in this aspect, since the employees and stakeholders come from different cultures and have different ways of thinking, FedEx has to provide equality and an environment that allows people to air out their views and to develop open-mindedness in decision making (Hemmatfar, 2010).

Riald (1996) provides that overt politics are the openly visible dynamics of human interactions. These influence strategic management since they allow the management to be aware of how their views are taken with the employees given chances to air out their views. FedEx Corporation can incorporate these through efficient and flexible organizational structures (Hemmatfar, 2010). Riald (1996) asserts that covert politics are hidden dynamics in human interactions that stem from cultural orientation and have the ability to destroy situations or responses that have been made innocently. These reactions in strategic management can be exposed through encouraging views, the creation of flexible structures and mechanisms for decision-making, and encouraging people to have a wider view of situations (Candler, 1996).

Conclusion

This report has focused on the analysis of FedEx Corporation’s strategy management through the use of Porter’s Five Forces and Porter’s Value Chain techniques as well as Whittington’s ‘Classical’ and ‘Evolutionary’ Schools of Thought. In this respect, the report recommends the adoption of evolutionary schools of thought. Evaluation of the core competencies and capabilities has been done with a critical review of the advantages and disadvantages of international trade. Further, the report has evaluated the four loops in the integrated model of decision-making and control.

Reference List

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