Introduction
All corporations aim at success. Some achieve it. Others fail. For those that achieve it, they may experience the challenge of sustainability and ultimately fade. Still, there are organisations that have been able to achieve success and maintain it over decades. Such organisations have achieved and sustained superior performance that meet or surpass both their internal and external relations’ expectations.
This essay shall analyse how FedEx has created and maintained superior performance using five forces, value creation, and culture school at a micro-level focusing on Human Resources (HR) practices.
FedEx aim has been able to create superior financial returns for its shareholders using its value-added services, business strategy, HR practices, supply chain management, and focused operation systems (FedEx, 2011). FedEx strive to meet all the needs of its diverse customers both in the national and international markets.
In order to achieve and sustain superior performance, the company strives to establish mutually beneficial relationships with its shareholders, employees, business partners, and suppliers (Business Services Industry, 2002). The company observes safety of its employees and aims at conducting business to the highest professional levels. Concentration on human resources has made policies and functions of HR in FedEx important part of creating and sustaining superior performance.
The company
FedEx is a logistic company serving global markets. Fredrick Smith founded the company out of the need to serve a service-oriented economy of the US in the year 1973 that needed quick and reliable delivery services (San Jose Consulting Group, 2003).
The company had suffered some losses during its entry into the international market. This was due to expensive expansion strategies. In addition, the company also used the US strategy in an international market like China. There were also cases of cultural differences, acquisition, organisational adjustments, structural policies, and adaptation of human resource issues so as to reflect and enhance FedEx culture.
The company did not experience success in its attempts to conquer the Chinese market due policies that did not favour foreign operations. The company had challenges in embracing the regional culture. On the other hand, FedEx competitors such as UPS and DHL understood Chinese market and grew their strategies gradually.
FedEx National Operation
The logistic industry complements operation of other organisations and individuals. FedEx has competition too from other local firms that offer similar services. However, operation at the national level affects services that FedEx Ground offers. The main competitor in this area is UPS. The global strategy mainly relies on FedEx Express that also faces threats from other international logistic companies. Thus, FedEx Express should complement operation of FedEx Ground (San Jose Consulting Group, 2003).
FedEx relies on several factors of production in order to realise superior performance. These are mainly managerial strategies, the company resources, and logistic technical know-how. The company has been able to develop reliable logistic systems that ensure successful operation of its complex systems. At the same time, the company has been able to exploit its resources and physical infrastructure such as ports and roads in order to deliver superior performance.
The domestic demands and competition in the US make FedEx constantly keep pace with such needs through upgrading its service. Customers need fast and cost-effective delivery; thus, logistic firms must see the need of upgrading their services to satisfy customers’ demands. As many companies come up to offer such services at reduced costs, FedEx must improve its customers’ responsiveness and introduce innovative products and use of technology so as to avert challenges that may result from consumers’ activities and competition.
Intensity of competition in the logistic industry is responsible for driving growth and sustainable performance. Thus, FedEx and its main competitors must continuously strive to enhance qualities of their products and services through innovation and technology. At the same time, such companies may also focus on lowering costs. However, cost reduction may affect business performance of logistic companies due to high costs of maintaining resources. Therefore, the only way is to improve services, create superior performance and sustain it.
Competitive Analysis: Porter’s Five Forces
Threats of new entrants
Logistic business relies on economies of scale. Thus, most firms aim at expanding their local operations and acquire small firms. Success and superior performance in the freight industry requires extensive networks and distribution centres (Porter, 1998). This implies that FedEx must possess highly reliable delivery facilities like vans, planes, trucks, and other means of delivering large cargo like trains and ships.
FedEx has created superior performance in overnight delivery business. On the other hand, its competitor like UPS has conquered the ground delivery business. Rivalry in the field has created conditions that ensure that main players like FedEx, UPS, and DHL diversify their services in order to provide value for customers and create superior performance. Such companies strive to create a one-stop shop for their customers.
FedEx and other players have reduced chances of new entrants. Any new entrant shall not pose serious threats as to FedEx as the company already has established competitive positions in all segments of the transportation business. FedEx has created a strong brand in the last few decades characterised by performance and achievements. Thus, any new entrant must struggle to build a brand name and have a share of the market.
FedEx took time to educate its customers about overnight delivery services and benefits of package deliveries. FedEx has established long-term business relationship with international companies such as McDonald’s, and Home Depot among others. FedEx also gets contracts from the government. The US government agencies have established confidence in FedEx to hand highly sensitive and hazardous deliveries. This can present challenges to new entrants who may have challenges establishing such high level of confidence.
FedEx also uses its brand name to enhance both domestic and regional business. It has take advantages of trade agreements and favourable trade regulations so as to position itself as regional solution for packages delivery. This means any new entrant will face strong opposition from established giants. For instance, when DHL acquired Airborne in order to challenge express delivery companies of the US, it met strong oppositions from UPS and FedEx.
Rivalry
Rivalry among competitors tightens as a result of reducing demands of products, increasing numbers of competitors, decline of the industry growth, fixed cost, as well as increasing costs of exiting the industry. FedEx rivals, in the delivery industry, include DHL, UPS, and TNT.
FedEx penetrated the market in the US and ruled the parcel delivery consequently leading in the international market. In 1984, FedEx extended its operations to Asia-Pacific after a successful acquisition of Gelco Express International. Afterwards, FedEx utilised the strategy of taking opportunities of the existing international transportation companies to outstretch its international business as in the case of 1989 when it acquired Flying Tigers.
This came with challenges as FedEx had to integrate local companies and strive to come with excellent international routes. In addition, FedEx had to develop trucking solutions in Europe and embrace changes of the international environment. In the quest of achieving profitable sale, FedEx applied the strategy of subsidizing its international business. As a result, its entry to international business resulted to massive losses in the early 1990s.
DHL thrives in the international transportation business and supply chain management, a fact that makes it the key rival of FedEx. The time when FedEx concentrated on seizing domestic market, DHL took this opportunity to dominate the international market. Therefore, by 1980 it had the largest share of customer internationally. In 1983, DHL penetrated the Chinese market. Consequently, it became the first express transportation company in China.
This prompted it to liaise with airlines and freight companies. It invested on air fleet and by 2003 acquired Airborne Express. The successful investments on different forms of transportation, and penetrating the international market, make rivalry between FedEx and DHL intense.
UPS is another competitor of FedEx in the domestic market in the US. It is fast overtaking FedEx because of its aggressiveness in bracing itself for the challenges in the industry. In 1985, it successfully launched its air service operating between US and six European countries.
The peak was in 1990 when the UPS managed deliveries of packages and documents to over 175 countries. TNT is also a possible competitor of FedEx. TNT offers similar services to those of FedEx, but the only hindrance is that the rivalry is not on a global scale as TNT operations are no longer in the US market (Charles and Gareth, 2004).
Irrespective of this rivalry, FedEx has managed to achieve economies of scale before its competitors due to its pioneering strategies as e-transactions, logistics related solutions, and supply chain even though they do not match new developments, inexpensive and powerful technologies that their competitors utilise to match FedEx standards.
Pressure from substitute products
Substitutes penetrate the market with the sole intention of making the customer switch from the product that dominates the market. Major substitute threats for FedEx include the Internet. Internet providers enlighten people on the benefits associated with the use of emails, document digitization and online forms.
Firms also embrace the idea of online digital signatures for the sake of time and money saving and institutions like banks check accounts online. These technological advancements prompt people to substitute their paperwork with digital advancements.
Massive usages of email and facsimile resulted to a drastic reduction of the industry volume. However, the only issue that may favour these companies is security as not all information especially the sensitive type can be sent through email. However, threats reduce due to factors like slow speed, insecurity, and unreliability.
In order to overcome challenges of substitutes, FedEx has embraced latest technology, for instance utilising the Internet in provisions of some services. FedEx has aggressively improved aircraft and shipping facilities to international standards, a factor that makes it impossible for any threatening substitute to match FedEx’s standards (MacKerron, Cowe and Milliken, 2009).
Bargaining power of buyers
Buyers get power from their high levels of concentration, or when they are few or in cases where product differentiation among organisations is not clear (Gonrig, 2008). The three firms are in stiff competition in the transportation industry for provisions of excellent delivery services that call for attention from prominent companies, especially after business expansion into international markets. In addition, the e-commerce has thrived.
Therefore, these logistic firms must show their potential in the delivery of products around the globe. At this stage, FedEx comes in handy in solving customers’ issues. FedEx’s competitors provide similar products at almost the same prices. Therefore, it has adopted a strategy by creating value-added services for the sake of differentiating its services from those of the competitors.
Potential customers worldwide have preference for their delivery providers. They do not rely on a single service provider and have the advantage of going for cheap providers. Therefore, FedEx considers this and puts efforts to achieve economic sales via penetrating the global market as well as decreasing the cost of operation so as to offer considerable prices. Therefore, FedEx has embraced medium bargaining power.
Bargaining power of suppliers
When there is an absence of substitutes in the market, or when there is a low concentration of suppliers, suppliers take advantages of increasing the prices of goods and services. In addition, suppliers have the ultimate say in their prices.
FedEx relies heavily on different suppliers, ranging from companies supplying fuel, shipping materials producers, airport, airplane and vehicle manufacturers. Less concentration of the fuel companies in the market and inadequate substitute for fuel give the fuel suppliers advantage of strong bargaining power. In addition, the FedEx’s profitability at times is unpredictable due to fluctuating fuel prices.
However, suppliers of packaging materials such as plastics and boxes, have less bargaining power. This result from the availability of substitute products and shifting cost reflected is negligible to FedEx’s total expenses. In the vehicle industry, FedEx gets the advantage of strong bargaining power as vehicle manufacturers are many and it does not depend on one manufacturer. In the aircraft and train industries, oligopoly gives the suppliers strong bargaining power as there exists limited manufacturers (Porter, 1998).
Value Chain
For FedEx to add value to its services and goods, its activities ought to operate at the optimum level for the company to achieve real competitive benefits. FedEx value chain begins with pickups of packages. The employers collect the packages at designated points such as residences and businesses.
They create value through ensuring package pickups take place anytime and anywhere. These create value through assurance of timely delivery. After package collection, FedEx secures them in a hub. Here, sorting of packages according to their destination takes place. The packages pass through a chain of hand to their final destination. From the hub, the packages head to their destination through trucks or plane.
FedEx ensures that deliveries of packages are at professional levels and in turn wins customers trusts and create great value. For achievements of perceived values, FedEx drivers carry out their duties efficiently. They strive to ensure that packages get to their destinations on time regardless of experienced hitches. This increases positive value for the company (Sand, 2010).
The final activity of delivery is customer service. This service entails after sales support. FedEx role in this is to provide support to their customers in tracing their packages while still in route. Such support enables customers monitor the status of their packages in transit. Such activities of FedEx exhibit extreme value for their customers (Barney, 1997).
Success in achievement of these values emanates from support activities of the company‘s infrastructure e.g. storage buildings, trucks, planes among others. Another support system that adds value to the services is the Internet services that FedEx offers to aid customer track their packages on transit online. Human resource and material management team as well support all the primary activities to function smoothly.
FedEx has managed to conquer the industry because of utilisation of information system and its competitive infrastructure that many competitors lack. FedEx has technological capabilities to track its customers’ packages during transit. The service saves the company time and money. Its competitors offer numbers that customers use to track their packages. This is an engagement that presents a challenge to customers.
FedEx’s fleets of vehicles, aeroplanes and human resources contribute to its massive infrastructures. These infrastructures facilitate success in FedEx delivery of services. They also consider the importance of time in deliveries of packages.
FedEx’s Business Level Strategy
The company’s strengths, in terms of technical know-how in logistics, technology, and innovation, put it in a position to pursue differentiation strategy at the business level. Customers and competitors know FedEx for provisions of high levels of services that are almost impossible to imitate and match.
Industry analysts know FedEx as an innovative company with a strong orientation towards high levels of service provisions. Consequently, such high levels of services translate to high charges. FedEx prices are usually higher than most of its competitors. Most customers consider such charges premium and believe that they will get the same value of services worth their payments. The company has been able to differentiate its standard of quality services from its competitors (Grant, 2005).
The company aims at establishing strong customers’ base through differentiation and provisions of superior services than its competitors. We must recognise that all logistic firms have the capacity to deliver packages. However, FedEx has differentiated itself as customer-friendly. Thus, the company has extensive support system, home deliveries, and money back guarantee approaches. These are what distinguish FedEx from its rivals.
Differentiation in the transport industry is not simple. Customers of today tend to be cost sensitive and would like to get value for less pay. Different in costs means customers may not have brand loyalty. Most customers do not know technical know-how of FedEx or how their technology is superior for managing the chain.
A typical customer will only consider costs and safe deliver of his or her packages. This implies that typical consumers may not opt for quality services, but rather consider affordability of services. Therefore, FedEx must find ways of differentiating itself from its main rivals and offer superior services. This enhances superior performance of the company. Sustaining superior performance will enable many customers pay for premium services of FedEx.
FedEx business level strategy for superior performance also targets customers’ needs. FedEx has understood the needs of its customers. Consequently, the company has established different branches of business, namely FedEx Ground, FedEx Trade Networks, FedEx Express, FedEx Custom Critical, FedEx Supply Chain Services, and FedEx Freight.
The company has created such segments in order to target certain customers depending on their diverse needs. This differentiation strategy enables FedEx to cater for all the needs of most customers. Targeting different customers with different services enables FedEx to offer superior services and create superior performance.
FedEx has segmented its market according to its customers’ needs. Segmentation strategy aims at creating superior services, products, and advanced provisions of services to customers. FedEx different segments operate independently but represent the company in terms of its values and efforts of creating superior services. Segmentation in different units provides each unit with a chance to concentrate on its own target market and offer superior services. This makes FedEx a specialised company.
FedEx Express is the busiest as it offers speedy delivery of packages based on the money back guarantee strategy. This enables customers to have confidence in the company. On the other hand, FedEx Ground mainly concentrates on small packages delivered to small business.
This segment derives its strength from satisfying the needs of customers who need quick deliver within a short distance. It almost works like FedEx Home Delivery services. FedEx Freight covers mainly heavy packages of over 150 pounds. The company restricts such services to regional deliveries within the US continent. This segment also delivers packages that have flexible delivery schedules. FedEx Custom caters for a small market segment due to the nature of packages it handles.
These are mainly products and packages that require special care and attention during transportation. FedEx has specially equipped transportation resources to cater for such customers. FedEx Trade Networks offers services to international destinations. The company last segment is FedEx Supply Chain services that track movement of parcel so as to enhance safe delivery and ensure customers satisfaction.
We can posit that FedEx uses the needs of its customers to segment its markets, and in turn, it offers superior services and products. FedEx Express and FedEx Ground are responsible for most operation of the company and its profits.
The two segments generate nearly $ 14 billion annually in terms of revenues. It is FedEx Express that has been responsible for creating superior services and customers’ satisfaction. Customers view superior level of performance in terms of express delivery and money back guarantee. This means that FedEx Express must deliver such packages.
FedEx has also adopted differentiation in quality in order to create a superior level of performance for its stakeholders. The company has invested enormous amounts of resources in order to keep its promise to its customers. This has enhanced its international operation among its rivals. The company has extensive organisation of units using its advanced logistic technology and know-how. This ensures that there is a smooth flow and delivery of packages.
This enables the company to deliver high quality services that satisfy its customers. FedEx has been able to create such a level of superior performance based on its customers’ responsiveness and innovation in terms of services and products.
The company has package tracking systems, efficient support functions, special package handling systems, hub coordination, and logistic supports. Provisions of these services have enabled FedEx offer superior services relative to those of their competitors and in turn achieve a high level of superior performance.
FedEx has competence in the transportation industry. Competence enables the company to offer competitive products and services to challenge those of its main rivals. The company derives its competence from its human resources and cutting edge technology. In addition, FedEx has facilities like fleets of aircraft that guarantee safe and timely delivery of cargos. The company’s commitment to customers is outstanding.
FedEx aims at creating superior customer services using its innovation and technology. The company has been collaborating with the local universities so as to improve its technological capabilities. FedEx competence and technological position are the driving force behind claims of international market shares.
Technological superiority for superior performance
Most customers know that FedEx is a leader in using technology in logistic business. In fact, FedEx was the first company to use technology in the logistic market (Powership system). Poweship was not effective. It could only store addresses and airways bills, and track packages.
The system relied on telephone lines for connectivity. However, this changed with the new era of technology. The company adopted many automated solutions to for its shipping business. The company combined such technology with its intranet and business solutions (Hitt, Ireland and Hoskisson, 2008).
FedEx has been able to adapt its systems to serve the global market. The company has created superior performance through relying on the power of online opportunities (Gerstein and Reisman, 1982). In order to serve the international market well, the company website has multiple languages option to choose. FedEx customers can register online, estimate their shipping costs, prepare airways bills, and avail the necessary document needed. This system has capabilities of handling the entire supply chain of FedEx (Porter, 1998).
The company uses the latest technology so as to enhance sorting and labelling of packages, label readers, and automated conveyor belt systems. Adoption of technology has enabled FedEx improve efficiency, lessen human errors, and enhance sorting of packages. Consequently, the company has been able to provide superior services and maintain superior performance in the industry (Charnovich, 2009).
School Strategy
FedEx Culture and HR Practices
We look at culture and HR practices of FedEx at the micro level. This gives an insight into how the company has created superior performance using its human resources and cultivated organisational culture to support its operation (Bettinger, 1989).
FedEx strives to create a high performance culture so as to offer superior customer services and values. The company has created a workplace condition based on loyalty of its employees. The company believes in value and diversity of its workforce. This enables employees to contribute and grow their careers.
This is a significant step towards employees’ inclusion into organisational culture of FedEx (Olson, 2011). Consequently, FedEx workforce derives a sense of pride working for the organisation. In turn, they deliver superior services to their customers.
HR Practices
FedEx is a service company that depends on its human resources for delivering values to its customers. The company hires the right people, trains and leads them with required skills for the job. These practices aim at creating a workforce that is capable of responding to customers’ needs. FedEx believes that only a well trained workforce can deliver superior performance to customers. The company hopes for repeat businesses from its satisfied customers (MacMillan, 2012).
FedEx has reward programmes for its employees. The company recognise unique contribution of its employees and reward them accordingly. It has a reward system known as Bravo Zulu Voucher Program. In fact, nearly 50 percent of the company’s spending caters for workforce pay and benefits. FedEx has created a culture system that recognises individuals’ efforts, generation of fresh ideas, enhanced excellence performance, and teamwork. The reward and compensation system at FedEx recognises such factors (FedEx, 2012).
FedEx also aims at creating a favourable environment for its employees’ individual growth and progress. The company has developed a human resource system (PRISM) that caters for all applicants and recruits. Thus, maintaining personal data of every staff is a central point for superior performance on FedEx. This is because the system has capabilities of posting, testing, and monitoring growth of every employee (Haid and Sims, 2009).
FedEx has Survey Feedback Action (SFA). This is mainly for internal operation of the company that helps the management decide on promotion, evaluation of performance, and workforce’s attitude towards new policies.
The company aims at enhancing communications between its management team and other employees. Employees have opportunities of expressing their opinions freely regarding the company’s policies. FedEx also has an open door policy that ensures that the company handles employees’ issues to acceptable standards (Thomas, Harburg and Dutra, 2007).
FedEx also uses employment retention to enhance the company performance. Employee retention has become a core part of HR policies in FedEx. The company believes that it is less expensive to retain its existing staff than finding new workforce. FedEx employees’ turnover rate is relatively low at six percent compared to the industry rate of 20 percent.
FedEx offers benefits under different programmes such as education, performance, healthcare, and insurance among others as ways of keeping employees satisfied and retain them (Gonrig, 2008). This promotes performance and reputation of the company (Harter, Schmidt and Hayes, 2002).
Conclusion
Since its inception, FedEx has transformed the industry of express delivery services. This has been possible due to sustained superior performance over the years. The company has relied on its human resources and policies so as to change and set the pace for other companies.
FedEx has recognised its employees through its various ways of HR practices and employees benefits. Consequently, employees have been able to deliver superior services to customers. Thus, the company has recognised that creating, delivering, and sustaining superior performance starts with employees’ satisfaction.
FedEx has also used its resources to create a strong brand in the US market. Customers know the company for overnight deliveries, efficiency, and excellence customer responsiveness. Transportation industry is dynamic, and there also always five forces and technological innovations that threaten the existence of any company. This implies that FedEx must carry out extensive investments in order to enhance its services and sustain superior performance.
Creating and maintain superior performance is not an easy task. Legendary company like FedEx has managed to do so. The company relies on its technical know-how, and technological innovations to create superior products and offer superior services to customers. FedEx systems track packages handling and in turn provide the needed value to customers. Technology has enabled the company offer additional value enhancing services.
Market segmentation and differentiation are also factors that have enabled the company offer superior services. For instance, FedEx has created different units in order to offer superior products to different market segments depending on the urgency, location, and type of package. The company has specialised in different areas for excellence performance and satisfaction of its customers. This approach does not only ensure superior services delivery, but also ensure increased revenue for the company.
Most customers consider FedEx services as premium due to high costs than its competitors. However, the company believes that it delivers value and superior customers services to match such costs.
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