Figure 1: Porter’s Five Forces Applying the Porter’s Five Forces model to the industry is not an easy task provided that FedEx Corporation provides various shipping services. In FedEx, these two sectors are represented by FedEx Express and FedEx Ground. FedEx Express is the world’s largest express transportation company. FedEx Ground, on the other hand, is the North America’s second largest provider of small-package ground delivery service, following the lead of United Parcel Service (UPS). 1. Risk of new entry by potential competitors The barriers to entry are very high.
One of the reasons there is a high entry barriers is the high fixed cost associated with the establishing the international transportation network. This includes hubs, ground transportation vehicles, air fleet, etc. Additionally, existing companies can take advantage of the absolute cost advantage achieved by large volume of shipment and economies of scale. 2. Extent of rivalry between established firms Established players in shipping service industry complete rigorously for a market share, as demonstrated by the constant battle between FedEx and UPS, the company who responses first to the constantly changing environment wins.
Established companies have to strive continuous improvement in quality, lowering price, and innovation. There is very low switching cost for consumers in this industry making rivalry even more intense. In addition, intense rivalry is also due to the fact that maintaining; the infrastructure of an express delivery company presents an exit barrier due to high fixed costs. 3. Bargaining power of buyers The bargaining power of large buyers in shipping service industry is high.
Cost associated with switching from one shipping service to another is very low.
Therefore, buyers can turn to a shipping provider that offer faster service, lower price, or service innovation with ease. This is especially true for large corporations, like IBM, which ships in large volumes and can bargain quantity discounts. 4. Bargaining power of suppliers The supplier power within this industry is fairly low. Large shipping service provider can affect prices of supplies, like packaging materials. This is because they buy in large quantities and can turn to different suppliers easily. 5. Threat of substitute products
There are not many substitutes to shipping. In this day and age where many businesses have strong online presence and a small physical presence, it would be difficult to find a substitute in delivering their products. Shipping services are very much similar to a commodity, in that it is not easily replaced with another service or even a similar service. [pic] Figure 2: Porter’s Five Forces model ? FedEx Corporation. [pic] Figure 3: Porter’s Value Chain techniques. The value chain for FedEx Express can be seen as starting with the pick-up of the packages.
FedEx employees gather the packages from various locations such as drop boxes, businesses and residences. Value is created for the customers by making package pick-ups possible just about anywhere or anytime. FedEx has a money back guarantee for those people, whose packages do not arrive on time, therefore creating value by assuring timely delivery of the packages. After the packages are initially picked up, they must then be transported to a hub. The hub is a central location where packages are sorted according to their destinations. The packages will likely pass through many hands before reaching their final destination.
The packages stay at the hub until they are picked up and shipped either by truck or plane. The package delivery is probably the greatest value creation activity for FedEx Express. The drivers of the planes and trucks must perform their activities efficiently to increase the perceived value of the service. The drivers must absolutely no matter what, get the packages to their destinations on time, and they do a good job in doing so. By meeting and exceeding the customers’ expectations value is increased with each positive result. The final primary activity is customer service.
This function is to provide after sales service and support, however, FedEx provides customer service during the use of the service by letting customers track their package while it’s in route. This creates extreme value for customers because they are able to check the status of their package at any given moment for an increased sense of security. b) The visionary behind the business Since 1973 FedEx had won over 194 awards for operational excellence. Fundamental to success of FedEx business was the vision of its founder. Fred Smith, Chairman, President and CEO of FedEx Corporation, invented the xpress distribution industry in March 1973. The success of FedEx’s distribution business in those early days rested on Smith’s commitment to his belief that the opportunities open to a company that would provide reliable overnight delivery of time-sensitive documents and packages were excellent. In 1980s, FedEx gave away more than 100,000 sets of PCs loaded with FedEx software, designed to link and log customers into FedEx’s ordering and tracking systems. In 1994, FedEx became the first big transportation company to launch a Website that included tracking and tracing capabilities.
By applying IT to business, FedEx leapfrogged the rest of the industry. Smith was the visionary who forced his company and offer companies to think outside of the proverbial one. The core of FedEx’s corporate strategy was to”use IT to help customers take advantage of international markets” (1). By 1998, FedEx was a US$10 billion company spending US$1 billion annually on IT developments plus millions more on capital expenditure. It had an IT workforce of 5000 people. Building the Transportation and logistics infrastructure FedEx was quoted as being the inventor of customer logistics management (2).
As early as 1974, FedEx started logistics operations with the Parts Bank. FedEx built a small warehouse on the end of its sorting facilities at Memphis. This was FedEx’s first attempt at multiple-client warehousing. As of January 2000 FedEx served 210 countries (making up more than 90 per cent of the world’s GDP), operated 34,000 drop-off locations and managed over 10 million square feet of warehouse space worldwide. It had a fleet of 648 aircraft and more than 60,000 vehicles, with a staff of nearly 200,000. It was the world’s largest overnight package carrier, with about 30 percent of the market share.
Building the Virtual information infrastructure Even as early as 1979, a centralised computer system-Customer, Operations, Service, Master On-line System (COSMOS)-kept track of all packages handled by the Company. This computer network relayed data on package movement, pickup, invoicing and delivery to a central database at Memphis headquarters. In 1984, FedEx started to launch a series of technological systems, the PowerShip programme, aimed at improving efficiency and control, which provided the most active customers (over 100,000) with proprietary on-line services.
In 1998, FedEx decided to overhaul its internal IT infrastructure under Project GRID (Global Resources for Information Distribution). In 1999, FedEx signed an agreement with Netscape to adopt Netscape software as the primary technology for accessing its corporate intranet sites. FedEx Marketplace launches on fedex. com, providing easy access to online merchants that offer fast, reliable FedEx express shipping. c) Advantages and Disadvantages Advantages |Disadvantages | | | | |- The cost of infrastructure of express delivery companies are a |- Maintaining the infrastructure of an express delivery company is an | |barrier of entry to new comers |exit barrier because of high fixed costs | |- FedEx leadership in global express delivery – As long as the nature|- Capitol is acquired through the volume of sales, so the high fixed | |of our socioeconomic environment exists, there will always be a need |costs can hurt when times are slow | |for express delivery |- Due to the nature of the industry, it is nearly impossible to become | |- E-commerce is creating an increased need for express delivery |the clear industry leader | |- Globalization offers opportunities for expansion |- The nature of the industry shows very low returns on invested capitol | | | | | |- The E-tailing industry demands ower shipping rates and charges to | | |pull customers from the retailing industries | | |- Major competitors: UPS, the airborne DHL | Figure 4: Opportunities and threats – FedEx Corporation Question 2 a) [pic] Figure 5: Whittington’s Generic Perspective on Strategy (2000). In his “What is Strategy – And Does It Matter? “(Thomson Learning, 2000), Richard Whittington identifies four main approaches: The Classical approach – ‘the oldest and still the most influential relies on the rational planning method dominant in the textbooks. ‘ The Evolutionary approach – ‘draws on the fatalistic metaphor of biological evolution, but substitutes the discipline of the market for the law of the jungle. ‘
The Processualist approach – emphasizes the ‘sticky imperfect nature of all human life, pragmatically accommodating strategy to the fallible processes of both organizations and markets. The Systemic approach – ‘relativistic, regarding the ends and means of strategy as inescapably linked to the cultures and powers of the local systems in which it takes place. ‘ Whittington (3) argues that these approaches differ in terms of the outcomes of strategy and the processes by which they are constructed. In terms of outcomes, the Classical and Evolutionary approaches view the maximization of profit as the outcome of strategy, whereas the other two approaches allow for additional outcomes other than profit.
In terms of process, the pairings are different with Classical and Systemic approaches agreeing that strategy may be deliberate while Evolutionary and Processualist theorists see strategy as ’emerging from processes governed by chance, confusion and conservatism. ‘ ? The Classical school of thought
• Classical approaches strategists would include Ansoff (1968) and Porter (1980).
• The underlying idea of the classical school is that the ultimate goal of business is return on investment (ROI).
• This end can be achieved through rational planning.
• It relies on notions of organizations operating as machines using idea of cause as visualize by Morgan (1997)
• This view of the firm echoes back to Taylorism.
• One can perceive the firm being broken down into different perceived constituent parts so that they can be studied using a scientific approach (Taylor, 1947). ? The Evolutionary school of thought Evolutionists include Hannan and Freeman (1977, 1989), and Willianson (1984) do not accept the notion of rational planning.
• They believe that market forces will ensure profit maximization and survival of fittest.
• The idea here is that organizations are merely fighting for their own survival.
• Darwin’s theories of natural selection offer an organic metaphor as an alternative to the machine metaphor of classical thinking.
• Evolutionists do not suggest in implementing managerial strategy.
• They favor the environmental fit, as markets rather than managers determine the most appropriate strategy. b) Base on figure 5, FedEx Corporation’s strategy will be seen as horizontal integration and vertical integration: Classical school of thought
Horizontal integration is a way of trying to increase the profitability of a company by reducing costs, increasing the value of a product offering, managing industry rivalry’s, or increasing the bargaining power of a company. These economic benefits are usually the rewards of company mergers and acquisitions in an industry. Horizontal integration is predominately characterized by similar companies merging together or acquisitions sought by the industry leaders. FedEx has carried out horizontal integration for many years, from as early as the mid 1980’s with their acquisition of the Flying Tiger air fleet to one of their most recent acquisitions of American Freightways in 2001. The FedEx acquisition of American Freightways was the most recent effort of significant size toward horizontal integration.
FedEx completed its purchase of American Freightways in February 2001 for $ 1. 2 billion. Since FedEx had already acquired Viking freight in the late 1990’s, Viking freight and American Freightways, both independent operating companies under the FedEx corp. umbrella, will now be known as FedEx Freight. “To address geographical issues, American Freightways will be known as FedEx Freight East while Viking Freight will be called FedEx Freight West. ” (CMP Media) With a singular brand name, Frederick W. Smith, FedEx Corp. ‘s chairman, president and chief executive officer, said, FedEx will boost its sales and marketing capabilities in the growing LTL (less-than-truckload) market. (Scripps Howard Inc. )
While American Freightways and Viking have excellent reputations in their market segments, by joining their sister FedEx companies to compete collectively with the transportation industry’s most diverse portfolio of shipping services, FedEx may gain a competitive advantage in the less-than-truckload shipping market. Evolutionary school of thought On the vertical side of integrating the strategy of attack by FedEx is very aggressive. Due to the enormous amount of infrastructure FedEx has, like cargo planes, delivery trucks, and holding hubs, they have a strong competitive position in the shipping services industry. FedEx seems to have tapered integration because although they control most of the distribution channels for their services, they still buy from independent suppliers in addition to company owned suppliers.
Most of the independent suppliers provide maintenance services to FedEx, like aircraft maintenance and repair, facilities maintenance, and ground vehicle support equipment; however, some independent suppliers also provide some packaging supplies as well. Most of the vertical integration carried out by FedEx looks to be in the downstream direction, therefore, FedEx has great control over the distribution channels, but it lacks in some upstream activities, such as raw materials and some component part manufacturing. However, with FedEx being largely a services industry it would be very difficult to see if the upstream vertical integration would pay off considering the bureaucratic costs, as well as all of the other implementation costs. It is obvious at this point that FedEx neither has the capability or the need to begin manufacturing their own truck or airplanes.
While FedEx has moved in a very aggressive manner to build up its international infrastructure of planes, shipping hubs, and services we thought of a couple of industries and directions that FedEx could follow to further expand. We will examine this according to opportunities presented by looking at the entire FedEx Corporation as a portfolio of competencies. Currently FedEx has its own large fleet of aircraft, extremely efficient storage and packaging capabilities, and tracking functions. This allows FedEx to follow through with its guarantee to customers that their packages will get where they need to go in the time promised. FedEx has a strong commitment to its customers and is constantly working on being able to meet a variety of needs through technology.
FedEx also has a competency in technology and innovation. They have a global mindset are presently seeking to grab a global market share. This wouldn’t be possible without a constant push to improve upon and develop new technologies to improve their service. Question 3 [pic] Figure 6: Stacey’s integrated model of decision-making and control (1996). The rational loop The rational loop of discover-choose-act is the classical starting point of strategic management of Stacey, though the strategic manager takes an international approach. The ‘discoveries’ about the organization in relation in its environment generate the necessity to ‘choose’ from many possible courses of action.
When choice is decided, the decision-makers ‘act’, and in the effects of their actions, new discoveries are made about state of the organization in its environment, and so on. The rational loop is essentially ‘unitary’:
• Is bounded by “rationality”.
• The choices and actions are those which can be supported by logical argument and evidence, and reference to the state goals, norms and values of the organization.
• Dissenting views are ‘irrational’, and need not be considered. The overt politics loop The ration loop can be subverted when the time comes to choose between courses of action, all of which are feasible and acceptable in organization terms. People may exert their power individually to influence events, or groups might form.
These could be coalitions of like-minded people; or people who, although they do not share the same interests, are willing to act together at least in the short term to oppose others. The political process is ‘overt’, in that it is part of the inevitable bargaining for resources that takes place in any organization that aims to achieve its goals through different functional activities, because the arguments, in public at least, are based on differing ‘rational’ perceptions of the organization in its environment. Strong groups with strong leaders can, however, use their power to impose their preferred ‘rationality’ and so choose the way forward for the organization. The culture and cognition loop ‘The culture and cognition loop’ sustains the unitary organization in its ‘shared mental models’.
AS long as everyone subscribes to the organizational culture, and the world does not produce any major surprises, then what is ‘discovered’ over time is likely to fit in with the agreed ‘rationality’ of the organization. If, however, changes in the environment or the effects of earlier organizational actions produce consequences that are very far from those expected, then the stability of the culture is shaken. It is equally disturbed when individuals, possibly from a different profession or maybe newly appointed, challenge the culture or approach issues with different models of how the world works. In this way contradictions and conflict are introduced, and the unitary organization begins to fragment into pluralism.
The covert politics loop The new and threatening situation provokes anxiety, and responses are made to that in a way that is largely unconscious. The differences between individuals give rise to different ‘coping’ mechanisms. Some people deal with the fear of failure and the challenge that arises from change by retreating into the ways that they know best (basic assumption behavior) and refusing to deal with the new ‘reality’. If these individuals form a group, then it is possible to see the potential within the organization for ignoring contradiction, and to some extent eliminating the conflict by forcing out those elements that are believed to be the source of it.
Stacey (4) has talked of ‘organizational defense routines’ in ‘the covert politics loop’, where people covertly (that is, without being able to admit to the basic fear which is driving their actions) form alliances and take action to make themselves feel safe again. The types of action taken will be explained rationally, but they are the result of unconscious mental processes.
References 1. Garten, 1998. 2. Bruner, R. F and Bulkley, D. , “The Battle for Value: Federal Express Corporation versus United Parcel Service of America, Inc. (Abridged)”, University Darden School Foundation, 1995. 3. Whittington, R. (2000) What is Strategy and does it matter? Thompson Learning. 4. Stacey, R. D (1996) Strategic Management and Organizational Dynamics, Second edition, Pitman, London. Words Counted: 3000 words. ———————– 1