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Table of Content
Executive Summary ............................................................................................ 3
Background ......................................................................................................... 4
Introduction ......................................................................................................... 5
Question 1a ......................................................................................................... 6
Porter Five Forces ...................................................................................... 6
The threat of entry ....................................................................................... 6
The power of buyers .................................................................................... 7
The power of suppliers ............................................................................... 7
The threat of substitutes ............................................................................. 7
Competitive Rivalry ..................................................................................... 8
Porter Five Force – FedEx Corporation .................................................... 9
Threat of new Entrants: ............................................................................... 9
Bargaining Power of Suppliers: ................................................................. 9
Bargaining Power of Buyers:...................................................................... 9
Product Substitutes: ................................................................................. 10
Intensity of Rivalry: ................................................................................... 10
Porter Value Chain.................................................................................... 11
Primary activities ....................................................................................... 11
Support Activities ...................................................................................... 12
Porter Value Chain – FedEx Corporation................................................ 13
Primary activities: ...................................................................................... 13
Support Activities: ..................................................................................... 13
SWOT analysis of FedEx .......................................................................... 14
Company Strengths and Resource Capabilities: .................................... 14
Company Weaknesses and Resource Deficiencies: .............................. 15
Company Opportunities: ........................................................................... 15
Company Threats: ..................................................................................... 16
Question 1b ....................................................................................................... 17
Core competencies ................................................................................... 17
Core competencies FedEx Corporation –............................................... 18
Capabilities FedEx Corporation of .......................................................... 20
Question 1c ....................................................................................................... 22
International trade .................................................................................... 22
Advantage of international trade to FedEx Corporation ....................... 24
Disadvantage of international trade to FedEx Corporation .................. 26
Question 2a ....................................................................................................... 27
Classical Perspective ............................................................................... 28
Organization structure .............................................................................. 29
Limitations of classical perspective ........................................................ 29
Classical Perspective – FedEx Corporation ........................................... 31
Visionary .................................................................................................. 32
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Mission ..................................................................................................... 34
Evolutionary Perspective ......................................................................... 35
Evolutionary Perspective – FedEx Corporation ..................................... 36
Question 2b ....................................................................................................... 39
Evolutionary perspective ......................................................................... 39
Classical perspective ............................................................................... 39
Prefer Classical perspective ..................................................................... 39
Question 3 ......................................................................................................... 41
The Rational loop...................................................................................... 41
The overt politics loop.............................................................................. 42
The culture and cognition loop ............................................................... 42
The covert politics loop............................................................................ 43
Appendix: .......................................................................................................... 45
1. Five Forces Analysis by Michael Porter. ................................................. 45
2. Porter Value chain ..................................................................................... 46
3. SWOT analysis .......................................................................................... 46
4. Whittington’s perspective......................................................................... 48
5. Stacy’s integrated model of decision-making and control (1996) ......... 49
6. Generic competitive strategies: ............................................................... 49
Reference: ......................................................................................................... 50
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Executive Summary
FedEx is a global logistics and supply-chain management company (Ng &
Farhoomand, 2002) that began operations in 1973 as an overnight package
deliver company. In 2003, annual revenue exceeded $20 billion and 24-48 hour
delivery is available to well over 200 countries. In 2001, Fortune named FedEx
one of the top ten most admired corporations in America (Boyle, 2002)
FedEx provides customers and businesses worldwide with a broad
portfolio of transportation, e-commerce and business services. We offer
integrated business applications through operating companies competing
collectively and managed collaboratively, under the respected FedEx brand.
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Background
FDX is the world‟s largest express transportation company. Revenues in
fiscal 1999 were $14 billion and the first quarter of fiscal 2000 was $3.6 billion.
There are more than 148,000 employees‟ worldwide, serving 210 countries and
366 airports worldwide, with 643 aircraft.
The ground vehicle fleet numbers
43,500 worldwide. The distance driven totals approximately 2.7 million miles in
the US alone, there are 34,000 drop boxes, 2400 FedEx shipping sites and 7600
authorized shipping centers.
The average package volume amounts to
approximately 3.1 million packages daily, weighing in at 25.6 million pounds
annually. Average daily freight volume is about 7 million pounds per day. This
level of business generates more than 500,000 daily calls and 63 million daily
electronic transmissions according to Cornell Equity Research, December 5,
1999 by Iwanowycz, Kaylo, Lee, Sekine, & Wells.
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Introduction
According to case study about FedEx by Ali F. Farhoomand and Pauline
Ng (2002) suggest that since its inception in 1973, Federal Express Corporation
(„FedEx‟) had transformed itself from an express delivery company to a global
logistics and supply chain management company. Over the years, the Company
had invested heavily in IT systems, and with the launch of the Internet in 1994,
the potential for further integration of systems to provide services throughout its
customers' supply-chains became enormous. With all the investment in the
systems infrastructure over the years and the US$88 million acquisition of
Caliber Systems, Inc., in 1998, the Company had built a powerful technical
architecture that had the potential to pioneer in Internet commerce. And
according to David Edmonds, VP, Worldwide Service Group, FedEx suggest that
“We are really becoming a technology company enables by transportation”. And
according to www.csustan.edu/manage/ Federal Express has five strategies that
govern business tactics. These are to improve service levels, lower unit costs,
establish international leadership and sustain profitability, get closer to the
customer, and maintain the People-Service-Profit Philosophy.
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Question 1a
Porter Five Forces
According to http://en.wikipedia.org/wiki/Porter_five_forces_analysis
suggest that Porter's five forces is a framework for the industry analysis and
business strategy development developed by Michael E. Porter of Harvard
Business School in 1979. It draws upon Industrial Organization (IO) economics to
derive five forces that determine the competitive intensity and therefore
attractiveness of a market.
Porter referred to these forces as the micro environment, to contrast it with
the more general term macro environment. They consist of those forces close to
a company that affect its ability to serve its customers and make a profit. A
change in any of the forces normally, requires a business unit to re-assess the
marketplace given the overall change in industry information. The overall industry
attractiveness does not imply that every firm in the industry will return the same
profitability. Firms are able to apply their core competencies, business model or
network to achieve a profit above the industry average.
Five forces analysis looks at five key areas namely the threat of entry, the
power of buyers, the power of suppliers, the threat of substitutes, and competitive
rivalry (see appendix 1) follow the link www.marketingteacher.com
The threat of entry
Economies of scale e.g. the benefits associated with bulk purchasing.
The high or low cost of entry e.g. how much wills it cost for the latest
technology?
Ease of access to distribution channels e.g. Do our competitors have the
distribution channels sewn up?
Cost advantages not related to the size of the company e.g. personal
contacts or knowledge that larger companies do not own or learning curve
effects.
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Will competitors retaliate?
Government action e.g. will new laws be introduced that will weaken our
competitive position?
How important is differentiation? E.g. The Champagne brand cannot be
copied. This desensitizes the influence of the environment.
The power of buyers
This is high where there a few, large players in a market e.g. the large
grocery chains.
If there are a large number of undifferentiated, small suppliers e.g. small
farming businesses supplying the large grocery chains.
The cost of switching between suppliers is low e.g. from one fleet supplier
of trucks to another.
The power of suppliers
The power of suppliers tends to be a reversal of the power of buyers.
Where the switching costs are high e.g. switching from one software
supplier to another.
Power is high where the brand is powerful e.g. Cadillac, Pizza Hut,
Microsoft.
There is a possibility of the supplier integrating forward e.g. Brewers
buying bars.
Customers are fragmented (not in clusters) so that they have little
bargaining power e.g. Gas/Petrol stations in remote places.
The threat of substitutes
Where there is product-for-product substitution e.g. email for fax where
there is substitution of need e.g. better toothpaste reduces the need for
dentists.
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Where there is generic substitution (competing for the currency in your
pocket) e.g. Video suppliers compete with travel companies.
We could always do without e.g. cigarettes.
Competitive Rivalry
This is most likely to be high where entry is likely; there is the threat of
substitute products, and suppliers and buyers in the market attempt to
control. This is why it is always seen in the center of the diagram.
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Porter Five Force – FedEx Corporation
Threat of new Entrants:
The threat of new entrants is low in the parcel industry. It is low because it
is very expensive to get involved in the industry. Starts up costs are high. It is
expensive to have the services that are equal to that of FedEx and the other
competitors. (2010, March 21)
Bargaining Power of Suppliers:
The bargaining power of suppliers is high. It is high because when looking
at the items that the parcel industry use such as, planes, computers, and
vehicles. If FedEx is not on good relations with these people, the costs can
increase drastically. If a supplier only has accounts or the majority of their
accounts with these companies, they will not be able to control prices and
supplies. Suppliers that are involved in this industry are: vehicle manufacturers,
airplane manufacturers, fuel suppliers, labor, airports, and shipping materials
manufacturers.
Bargaining Power of Buyers:
This is a moderate force in this industry because competition keeps
prices similar among the companies. The only difference is companies, such as
Federal Express who have value-added services that allow a higher price. Also,
the buyers of the services in this industry are reactionary. They do not know the
technology before it happens. They become dependent on the technology,
service and speed offered by the companies in this industry and will pay for it.
They have the ability to switch their user to one of the other members of the
industry at any time. It is the job of FedEx to make sure that the customer is
always happy. It comes as no extra cost to the buyer to switch their parcel
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delivery company. The only lose that is really suffered comes at the expense of
the company for losing a client follow the link www.csustan.edu/
Product Substitutes:
It is very easy to substitute a delivery service. There are not many out there
but the ones that are well established in the eyes of the customer and the
industry. It would not be a complex task to switch one company for another
(2006). Since this is the case, FedEx has to maintain good customer relations
with their clients.
Intensity of Rivalry:
The parcel industry is an intense industry. There are five main players in
the industry competing for market share. The features that they are competing on
are the speed of delivery, the efficiency of the delivery, and prices. If you can
create a successful mix of the three of those factors, you will hold the greatest
market share. (2007) This is a strong force in this industry because the
competitors use price cuts to compete, there is a low cost and ease to switching
brands, and the companies in this industry diversify and acquire other companies
for strategic growth and synergy.
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Porter Value Chain
According to en.wikipedia.org/wiki/Value_chain suggest that the value
chain, also known as value chain analysis, is a concept from business
management that was first described and popularized by Michael Porter in his
1985 best-seller, Competitive Advantage: Creating and Sustaining Superior
Performance.
Follow the link www.learnmarketing.net suggest that
Michael Porter in 1985 introduced in his book „The Competitive Advantage‟ the
concept of the Value Chain. He suggested that activities within the organization
add value to the service and products that the organization produces, and all
these activities should be run at optimum level if the organization is to gain any
real competitive advantage. If they are run efficiently the value obtained should
exceed the costs of running them i.e. customers should return to the organization
and transact freely and willingly. Michael Porter suggested that the organization
is split into „primary activities‟ and „support activities‟. (See appendix 2)
Primary activities
Inbound logistics: Refers to goods being obtained from the organizations
suppliers ready to be used for producing the end product.
Operations: The raw materials and goods obtained are manufactured into the
final product. Value is added to the product at this stage as it moves through the
production line.
Outbound logistics: Once the products have been manufactured they are ready
to be distributed to distribution centre, wholesalers, retailers or customers.
Marketing and Sales: Marketing must make sure that the product is targeted
towards the correct customer group. The marketing mix is used to establish an
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effective strategy; any competitive advantage is clearly communicated to the
target group by the use of the promotional mix.
Services: After the product/service has been sold what support services does
the organization have to offer. This may come in the form of after sales training,
guarantees and warranties.
With the above activities, any or a combination of them, maybe essential for the
firm to develop the competitive advantage which Porter talks about in his book.
Support Activities
The support activities assist the primary activities in helping the organization
achieve its competitive advantage. They include:
Procurement: This department must source raw materials for the organization
and obtain the best price for doing so. For the price they must obtain the best
possible quality
Technology development: The use of technology to obtain a competitive
advantage within the organization. This is very important in today‟s technological
driven environment. Technology can be used in production to reduce cost thus
add value, or in research and development to develop new products, or via the
use of the internet so customers have access to online facilities.
Human resource management: The organization will have to recruit, train and
develop the correct people for the organization if they are to succeed in their
objectives. Staff will have to be motivated and paid the „market rate‟ if they are to
stay with the organization and add value to it over their duration of employment.
Within the service sector e.g. airlines it is the „staff‟ who may offer the competitive
advantage that is needed within the field.
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Firm infrastructure: Every organization needs to ensure that their finances,
legal structure and management structure works efficiently and helps drive the
organization forward.
Porter Value Chain – FedEx Corporation
Primary activities:
Inbound logistics-handing and storing of products to be shipped
Operations-shipping products, logistics, value chain analysis, financial
analysis, handing orders, checking orders.
Outbound logistics-delivery of the product, receiving payment
Marketing and Sales- develop a positive imagine of the company making
people feel comfortable and satisfied with the product.
Service- Concentrates on customer satisfaction, doing anything that
satisfies the customers.
Support Activities:
Procurement- purchasing, trucks, planes, gas and other assets
Technology development- investments in systems innovation, research and
development and information technology
HR management-hiring, training, developing and compensating employees
from truck drivers to top-level management
Firm infrastructure-General management, planning, accounting, legal
support, government regulations, required to support the value chain.
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Global distribution involves managing not only the movement of goods,
but also the flow of information and finance that moves with the goods. A
FedEx supply chain solution is a streamlined organization and that one core
competency leads to another it is a continuous flow. (2009, July 6)
SWOT analysis of FedEx
According to case study about FedEx Corporation by Ali F and Pauline Ng
(2002), and following the link www.csustan.edu
Company Strengths and Resource Capabilities:
Globalize: Federal Express operates on a global scale. They operate in 211
countries. They provide services that appeal to most of the world. They have
such a large market in which to operate, and thus realize tremendous revenues.
They can also achieve global economies of scale.
Innovation: Federal Express took airplanes and trucks and used them differently
than any other company before them. This is innovation. They have first-mover
advantage in name recognition because of this innovation. This has helped them
to remain the industry leader since 1973.
Technology and Communication: Federal Express uses and continues to
search for new technology. They allow spending of $1billion a year, 10% of total
revenues, for information technology. That commitment keeps customers from
switching to other providers. Federal Express also has excellent communication
with their customers. They use tracking devices on all shipments, and customers
can find out where their shipment is through many different avenues including a
user-friendly Web site. Federal Express customers are assured that FedEx will
always be on top of technology.
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Strategic Vision: Federal Express‟ will always have competent top managers in
charge of strategic direction. Frederick Smith built an industry leader, and kept it
in that position since 1973.
Industry Leader: Federal Express has been the industry leader since 1973.
Strong Brand Image: In 1990, Federal Express became the first company
awarded the Malcolm Baldrige National Quality Award in the service category. In
1994, Federal Express became the first global express transportation company
to obtain simultaneous system-wide ISO 9001 certification in international quality
standards. Federal Express has also developed their own quality system that
matches their customer‟s standards.
Company Weaknesses and Resource Deficiencies:
Rising Prices: Federal Express‟ prices are above their competitors‟. This can be
a weakness if their customers do not perceive a difference between Federal
Express and its competitors‟ services.
Running Subsidiaries Separately: FDX has deliberately chosen to keep their
companies separate. In FDX’s 1998 Annual Report, CEO Frederick Smith states,
"Simply layering the unique resource and operating requirements of a timedefinite, global, express-delivery network onto a day-definite, ground smallpackage network would surely result in diminished service quality and increased
costs. Under the FDX umbrella, we will leverage our shared strengths while
operating each delivery network independently, with each focused on its
respective markets." Frederick Smith is confident this will be strength, instead of
a weakness. Time will tell.
Company Opportunities:
Expansion Globally: Federal Express can continue to expand globally, including
the other companies under FDX.
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Expansion Internally: Federal Express can continue to acquire more
companies, and expand into new technologies or areas in their industry.
Run Subsidiaries Together: If FDX doesn‟t profit from running the subsidiaries
separately, they can change to integrating their operations to achieve better
synergies and economies of scale.
Contracts with Large Corporations: To stay the industry leader, Federal
Express should form contracts with companies who will add cost-saving or valueadding benefits to their services.
Joint-Ventures: Federal Express can form joint ventures, such as already with
Netscape and American Express, to enjoy the growth of integrating their
customer bases.
Expansion of e-commerce: Federal Express already has a major presence of
shipping online. They should keep finding Internet companies to contract delivery
of their products. Since the growth of e-commerce is rapid now, Federal Express
could enjoy both profits and brand name recognition from this kind of expansion.
Company Threats:
Relations with Foreign Countries: Through Federal Express‟ expansions
globally, they are subject to laws and regulations of all foreign countries. There
could be major problems in this area, stunting growth and raising costs. Already,
Great Britain will not let Federal Express fly their planes for shipments. Federal
Express must either load their cargo on to British planes, or use ground
transportation. This is very inefficient for Federal Express; however, it keeps
competition out for British Air Transportation companies. Everywhere Federal
Express goes, they are at risk for regulations that hinder their operations or
efficiency.
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Economic and Political Conditions: Federal Express is subject to the entire
world‟s economic and political condition in the areas of fuel prices and supply,
customer purchase of their services, and relations with foreign countries. As a
global company, they are subject to much more risk than domestic companies
Question 1b
Core competencies
The definition of core competencies following the website searchciomidmarket.techtarget.com “A core competency is fundamental knowledge,
ability, or expertise in a specific subject area or skill set”. And from other website
tutor2u.net/business they suggest that “Core competencies are those
capabilities that are critical to a business achieving competitive advantage. The
starting point for analyzing core competencies is recognizing that competition
between businesses is as much a race for competence mastery as it is for
market position and market power.”
Beside that C.K.Prahalad noted that “A core competency is an area of
specialized expertise that is the result of harmonizing complex streams of
technology and work activity." Core competencies are the most significant value
creating skills within your corporation and key areas of expertise which are
distinctive to your company and critical to the company's long term growth- give
by the website www.1000ventures.com/business_guide According to Prahalad
and Hamel (1990) “Core competencies are the collective learning in the
organization, especially how to coordinate diverse production skills and integrate
multiple streams of technologies.” From their points of view the core
competencies are the collective knowledge and skills that distinguish an
organization from the competition, which should also be difficult for the
competition to imitate. In effect, core competencies provide the basis for
developing new products and services, and they are a primary factor in
determining an organization‟s long-term competitiveness. Moreover, a true core
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competence, and could provide a competitive advantage
Core competencies FedEx Corporation –
According to Blackmon, Douglas, Ante Up! Big Gambles in the New
Economy: Overnight Everything Changed for FedEx. The Wall Street Journal.
(November 4, 1999). FedEx's delivery volume within the U.S. accounts for about
two-thirds of the companies‟ revenue, and has slowed in the past year. Frederick
Smith, CEO of FedEx believes the company can remake itself by slowing some
things down. It has invested $500 million in the past two years to double
capacity at its RPS unit, a business-to-business delivery network acquired in
1997. RPS transports packages more slowly, more cheaply and with much
higher profit margins. Federal Express has realized that the need for speed and
reliability have slowed down. They are willing to make changes in their own
company and market new ideas. They have a strong brand logo and loyalty that
will assist them in their new projects.
Beside that from other website they noted about core competencies of
FedEx, www.chrmglobal.com “Core competency” was added to management
literature by Mc.C.K.Prahalad and Mr.Gary Hamel both Harvard professors. They
said that every organization has got a core competence up on which its products
and services are built. They introduced that what is called as a “VGD Test” to
identify whether a given competency is a C2.
V- Does this competency Produce Significant value to customers?
G- Does this competency act as a Gateway for survival and future of the
organization?
D- Does this competency differentiate the organization from its competitors?
A competency must satisfy all the 3 conditions, to be designated as C2.
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Core competency of FedEx is “Delivery”. FedEx is long known for its
outstanding delivery and goods tracking mechanisms. FedEx delivery agents
carry palmtops to update goods delivery status back to their main frames from
their field. It enables FedEx customers to track their good from source to
destination and on time delivery.
In the article “Product or Proficiency: What are a Utility‟s Unique Skill of
Leonard M. Fuld and Diane Borska, (July 1, 1997), they recommend that FedEx
truly has a competency in customer service, because it scores relatively high in
both the cost-reduction and value criteria for determining a core competency .
For FedEx, customer service has a high value rating because it contributes
performance, quality or strategic value to the core product: getting a package to a
customer in a timely manner.
While the value of the activity is important, its impact on the product's cost
is also a significant determinate of a core competency. Once again as shown by
its high cost-reduction score, FedEx's customer service is viewed as significantly
lowering the cost of delivering the package. If a package is delivered properly it
will not only keep the customer happy, but also will keep the costs down by not
having to redeliver the package. The cost criterion can determine which company
has the stronger competency in billing and collection.
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Capabilities FedEx Corporation of
According to http://en.wikipedia.org/wiki/Capability suggest that “A
capability is WHAT a company or organization needs to be able to do to execute
its‟ strategy”. Additionally, www.1000ventures.com has definition about
capabilities “Capability represents the identity of your firm as perceived by both
your employees and your customers. It is your ability to perform better than
competitors using a distinctive and difficult to replicate set of business attributes.
Capability is a capacity for a set of resources to interactively perform a stretch
task.”
FedEx have successful in sourcing, which plans and manages inbound
transportation for more than 1, 5000 product suppliers into 26 General motors
power train facilities. This capability puts FedEx at the leading edge of the $225
billion logistics-outsourcing industry. (Thomas H, Marius L, Seven V, 2006)
With all the investment in the systems infrastructure over the years and the
US$88 million acquisition of Caliber Systems, Inc., in 1998, the Company had
built a powerful technical architecture that had the potential to pioneer in Internet
commerce. (Farhoomand and Pauline, 2000)
Advances in IT promoted the globalization of commerce. The ability to
share information between operations/departments within a company and
between organizations to generate operation efficiencies, reduce costs and
improve customer services was a major breakthrough for the express
transportation industry. However, of even greater significance was the way in
which new technology redefined logistics. (Farhoomand and Pauline, 2000)
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 5,000 people. (Farhoomand and Pauline, 2000)
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