FedEx is made up of several divisions. The most significant division, and market leader in its segment is its FedEx Express unit. The FedEx Express unit is the world's number one express service carrier. FedEx Express delivers three and a half million packages every day to two hundred and twenty countries. FedEx owns a fleet of six hundred ninety airplanes, and fifty thousand motor vehicles and trailers. FedEx Office retail outlets and shops offer document-related and business services. These retail outlets also function as hubs for other FedEx units ("FedEx corporation competition," 2014). When FedEx is measured against all other parcel delivery companies, it sits at the number three position – rival company United Parcel Services is the number one income earner and DHL (a division of Germany’s Deutsche Post AG) is right behind ("Fedex corporation," 2014).
Industry Peers
FDX
The Compound Annual Growth Rate (CAGR) for five years for FedEx is the most impressive of them all. While the number one and number two players are earning more money, FedEx is growing at a rate that is twice as fast as the other two, combined!
FedEx has been very successful due to five key areas that are a corporate priority for the company ("Fedex: Success starts," 2014).
The first priority is the recognition that the company’s reputation, and therefore, the way that is perceived in the marketplace is key. It is what FedEx calls “reputational intelligence”. The second priority is creating a corporate culture that continually strives for excellence – where mediocrity is simply not tolerated. The third priority for FedEx is an admission that failures are lessons learned and examples to learn from, not mistakes made that are quickly hidden away for none to see. The fourth priority is surveying all company processes at all times and constantly looking for ways to streamline and make processes more efficient. Finally, FedEx strives to take advantage of areas for rapid growth.
FedEx is exceptional at making a connection with its customers. There are few brands that become verbs in the same way that FedEx has become. The verb “FedEx” has become synonymous with an action word that means: ship a package so that it arrives quickly. No one ever says the phrase “let’s UPS that box”. Nor is the phrase “let’s go DHL the package”. This type of transformation from brand name to becoming a verb suggests that there is an intimate connection between the buyer and the service provider (Hoban, 2013).
In 1994, the FedEx name was created when Federal Express decided that a relaunch of the brand was required. At this time all aircrafts and vehicles were rebranded with the new brand identity. The company leveraged its existing brand identity, but also identified a way to use all of their delivery vehicles and shops as billboards to advertise their services ("Why federal express," 2014). Federal Express became FedEx, and a new era, one of global competition and growth in untapped markets was berthed.
A Resource Based View (RBV) of FedEx reveals that they are role models in their use of resources to compete well and be successful. This is certainly the case given the FedEx CAGR, versus those of their nearest competitors. FedEx has many tangible and intangible resources as well as organizational capabilities ("The vrio analysis:," 2014).
FedEx enjoys great success. In his letter to shareholders, in the 2013 annual report, CEO and company Founder Fred Smith is very complimentary of his staff and what the company has been able to achieve in 2013 (Smith, 2014). In this letter, he also describes some of the strategies that FedEx will continue to use in order to grow and improve profitability. His statements are a testament to how well FedEx uses their resources in a VRIN capacity. This letter is but one example of how FedEx can dominate the shipping business by making their resources strategically important. In doing so, FedEx has proven to be:
- Valuable
- Rare
- Inimitable
- Non-substitutable
1. Valuable
In the forty years that FedEx has been operating, they have developed a value to three different market segments. And most recently, they have added e-commerce to their valuable portfolio. Since its inception, FedEx created and continued to improve upon Fred Smith’s spoke and hub model. As this method of doing business grow and evolved, FedEx was able to diversify their offerings. From the FedEx Ground, business, they created a way to transport packages in a way that met the needs of a new and different client set: the express market. In order to cater to the unique needs of the express clients, FedEx put to use their knowledge of the shipping process from their valuable know-how of the Ground shipping business. FedEx added aircrafts to speed the transport of packages, and, more vehicles in order to get the packages to their destination even faster.
The natural evolution of the now valuable Ground and Express model enabled FedEx to grow to another adjacent space: cargo. Here again, there were processes in place, and human capital that was capable of shipping in two different ways. Before long, FedEx created a cargo transport business. This occurred as a result of the creation of new processes, and, the continual quest for improved ways of operating.
In 2012, FedEx created a new umbrella structure that would allow them to conduct business in a new and innovative way. They created an e-commerce business that would be an enabler for their current shipping capabilities, but would streamline the means by which this business is transacted. In doing this, FedEx has created a new market by catering to the customer who wants his/her service customized. With the FedEx e-commerce innovation, customers are now able to demand the day, time and location where their package can be delivered. In this era of “all about me”, FedEx has found a way to create a way to do business to the pickiest of customers, hence making themselves very valuable to this new set of clients.
Smith’s letter to shareholders ends with a very poignant statement that sums up just how valuable FedEx is and how being of value to their customers and employees is their top priority. Smith states: “You can count on FedEx, based on 40 years of operations as of April, to continue doing what's right for our shareowners, customers, team members and the communities we serve. We are dedicated to continuing to make a better and more prosperous world as a result” (Smith, 2014).
2. Rare
What makes FedEx rare is not that they have airplanes, trucks or vans that are different from the ones used by UPS or DHL. It’s not the shipping label or even the ability to track packages: the other competitors have similar capabilities and their own shipping label that is every bit as effective at identifying the information about where the package is going. True that DHL does not have retail outlets -- but that UPS does. It is not the things that they use that makes FedEx rare: it’s the way in which they are used and the strategy that they implement to use the resources in such a way as to make them profitable. FedEx has been able to enjoy a competitive advantage due to the way that they rely on their resources in a unique way.
When FedEx wanted to expand their reach to developing markets, they used a combination of strategies to pursue this growth initiative. In India, they carefully selected businesses that could benefit from partnering with FedEx to ship their goods out of the country for sale. They selected customers that would immediately recognize the value of the service that FedEx provides and could be a showcase for the rare opportunity that they now enjoyed as a result of a partnership with FedEx. In one example, they partnered with a farmer in India who was struggling to sell his organic herbs and teas. By partnering with FedEx, the farmer was able to expand his business and become profitable. FedEx immediately launched a marketing campaign around this success story to attract new customers by shining a light on their unique capabilities, to help struggling businesses in developing countries to be able to do the same. The effort in India is a great marketing effort, but it also speaks to FedEx’s sincere effort as a Corporate Socially Responsible (CSR) company. A rare breed of companies, such as FedEx recognize that doing’s what’s right is always the right thing to do.
Fred Smith is also one of the reasons that FedEx is rare. Smith created this company forty years ago and is still the Chief Executive Officer. Never mind competitors in the package delivery business, even when other Fortune 100 companies are studied, it is rare to find a company that still has its Founder as its CEO – for forty years! This consistency of approach and confidence as a leader make FedEx unique not just in their market segment, but in Corporate America as a whole.
3. Inimitable
The “Purple Promise” is inimitable. Ask any employee at FedEx to explain the “purple promise” and they will say: “I will make every FedEx experience outstanding” (Dumaine, 2012). Incredible to find three hundred thousand employees that can all recite the “so what” of the company in a single, simple sentence. The simplicity and elegance of this value proposition is that is so easy and straightforward to implement. Employee behavior like this is not a coincidence. FedEx is a company that has purposely implemented a competitive advantage borne out of a culture that demands excellence from all of its employees, and, has role model leadership that exemplifies that behavior.
Reputational intelligence is hard to copy. The only other company that comes close to what FedEx is can do to continually monitor how to delight customers is amazon.com. FedEx does it in a way where each employee is aware that an outstanding experience with every customer they service will retain their customer base and will retain new customers that are tired of the impersonal dealing with rival shippers. FedEx has a leg up on amazon.com because e-commerce is only a small segment of their business. FedEx is able to interact face-to-face with their clients daily, to gauge and improve upon their reputational intelligence.
4. Non-substitutable
It would be difficult, if not impossible for a company to launch a new shipping business today and suddenly be able to substitute what has taken FedEx forty years to perfect. Where UPS, DHL and others have fallen short of the capacity for growth and competitive advantage is in their lack of ability to put excellent customer service as the top priority – as the most important business strategy. Hence, while it may be possible to launch a new shipping company, it would be hard to beat the purple promise and the way that FedEx manages to continue to delight customers. In 2013, Fortune magazine designated FedEx as one of the top ten most admired companies in the world.
The Leadership team at FedEx has been a major contributor to its success. Success starts at the top, and, this is attributable to the leadership of Fred Smith, the FedEx founder and CEO for forty years.
FedEx takes leadership very seriously and any leader at FedEx or Human Resource Manager can name nine attributes that all FedEx leaders have – with great certainty (Row, 1998). The nine attributes are: charisma; individual consideration; intellectual stimulation; courage; dependability; flexibility; integrity; and, judgment. FedEx uses these nine attributes to evaluate whether workers are suited for leadership roles in the company.
Also, the leadership team that reports directly into Smith are a group of FedEx veterans. In 2013, after thirty seven years of service at FedEx, the head of the FedEx Ground division retired. Amazingly, and because of the deep bench strength that FedEx has, Smith was able to replace this veteran, with another FedEx long time leader of twenty five years. Evidently, there is a deep and loyal commitment on behalf of the leadership team at FedEx. This is another reason that the company continues to enjoy a high growth rate and to be able to open new markets with speed. The Chief Financial Officer has been a FedEx employee since 1980. He too, like the new and former leaders of the FedEx Ground division has been with the company through many changes.
Smith created a culture of putting people first. This is termed “the purple promise”. He created a culture where every employee understands that customer satisfaction is the most important accomplishment in the company. In doing this, Smith used the 4 P’s of leadership: Envision, Enable, Empower, and Energize.
When Smith was in college, after returning from serving in Vietnam, he envisioned a company for shipping that would use a hub and spoke model. This was the subject of his thesis and after graduation; he used this vision to create a new shipping company.
Once the hub and spoke model was in place, Smith was able to begin staffing the company with leaders that were familiar with the shipping business. These same leaders are still with him today, and form his Executive C-suite team. Due to Smith’s strong vision, and his ability to implement a sustainable model, the company has survived and thrived in the shipping industry.
Smith empowered his team and created the “purple promise” – the company’s value proposition that gives everybody, every person, every staff member a common goal of excellent customer satisfaction.
Smith continues to energize his FedEx team by reinforcing that customer service excellence is what the company is all about. He leads by example and inspires his teams to continue to put customers as their top priority.
In conclusion, hats off to FedEx for continuing to reinvent itself to meet the demands of its evolving customer base. Their story is an extraordinary testament to how well six white males can work well together, like a tight-knit military group to manage the company well and strategically. Smith did spend time in Vietnam just before returning to the United States to build this hub and spoke company based on his college thesis paper. Who knows, maybe the discipline and camaraderie learned in the military helped to shape and sustain FedEx over the years.
In an ever-changing world, with revolving door C-suite rotations, it is truly a testament to FedEx that they are able to retain long term veterans in the most visible and important roles. I was struck by the lack of the diversity on the leadership team. The entire leadership team, except for the General Counsel are all white males. In today’s changing demographics and demands by a diverse population, will the veteran team of white males be able to continue to take the company in the direction that it needs to go? Another risk is, as they all reach retirement age at the same time, how will FedEx be able to manage a complete turnover of their senior leadership team and still sustain growth and profitability? Will a change in leadership in so many key roles be disruptive to FedEx, or has the culture that they have all created for forty years endure and carry FedEx through its next generation of leaders?
The good news is that the shipping industry is not one where disruptive innovations can distort the company’s business. The shipping industry is more of a steady, incremental change industry. To that end, disruption caused by innovation is not a threat to the success of FedEx. In the future, FedEx may face cost pressure as the demand for quick package delivery becomes the norm. For now, they are able to command a premium price for speed and this will likely be the case for some time to come.
References
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The vrio analysis: an overview. (2014). Retrieved from academic.udayton.edu/../Applying the VRI.
Smith, F. (2014). Chairman letter. Retrieved from http://annualreport.van.fedex.com/2013/ChairmanLetter.aspx
Dumaine, B. (2012, May 11). Fedex ceo fred smith on . everything. Retrieved from http://management.fortune.cnn.com/2012/05/11/500-fedex-fred-smith/
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