Planning for the Future at Federal Express – A Case

The managers of Federal Express were concerned. They had transformed the company from a small package delivery service into the major force in overnight delivery. However, they needed to decide on directions for the future. Competition was closing in from several sides, and Federal Express managers felt the need to move quickly if it was to continue to grow and thrive.

Federal Express managers did not consider the company simply a package delivery service. They saw it as part of a larger, more complex industry that should be thought of in terms of ‘information delivery.’ Although they competed with rivals other overnight carriers like United Parcel Service and the US postal Service – they also worried about information carriers such as MCI, AT&T, and other telecommunication companies. Therefore, it was important for company managers to speculate on the future directions of all these companies.

Federal Express had a reputation for being at the forefront of trends, and its managers wanted to keep both its position and its reputation. The company had started long before anyone realized overnight delivery service would become such an important part of doing business. Although it had taken more than three years for the concept to catch on and make the company profitable, Federal Express was now the leader in the industry. The technology and the attitude of innovation that made it possible to go from handling 40 packages a night to 1.7 million were important assets. Now, managers needed to plan how to use these assets to meet the information delivery needs of the future.

The postal service was obviously impinging on Federal Express’s overnight-delivery business. The “Express Mail” package was a direct and serious challenge. However, the Post Office was somewhat limited as to future directions. It could challenge in terms of price and service, but would probably continue to specialize in the same type of product. United Parcel Service (UPS) was also a direct challenger – one that priced its service considerably below Federal’s and was noticeably improving that service. Where would UPS go in the years to come?

Despite the obvious challenges from competing package- delivery services, Federal Express was far more concerned about competition from organizations offering other methods of information transfer. MCI, for example, had recently introduced its MCI Mail system which transferred documents from one computer to another in far fewer hours than Federal Express could promise. Was this what businesses wanted in the information age? If so, how should Federal react?

Since 1979, the processes of doing business have changed drastically. It is no longer acceptable for a business letter to take a week to move from one coast to the other. For important documents businesses now think in terms of hours instead of days. The development of a truly global marketplace has also affected the document delivery business. As international business becomes more common, information transfer systems have to keep pace.

To assure survival, the people at Federal Express knew the company had to move forward. Federal Express had to be ready to meet the needs of tomorrow’s businesses, and to do this they had to anticipate those needs today. Which needs were going to be the most important? What could they do to get ready now?

Responding to the Changing world of information Delivery:

Federal Express managers have always had a clear sense of where the company is going: They want to be the leader in the information delivery business. Yet, as the business grows more complex and diverse, being the best has become more difficult. Take Federal Express’s ZapMail facsimile service, which was intended to compete with MCI’s Mail system. Zapmail seemed a well timed innovation and a way to stay ahead of the competition, but Federal Express managers didn’t anticipate the number of businesses that would buy their own FAX machines, effectively undermining the new service. They discontinued ZapMail in 1986.

These problems did not faze Smith. To demonstrate his commitment to global information services, Smith made two key moves. First, he acquired Tiger international, the world’s largest cargo hauler. This gives Federal Express access to the vast network of routes Tiger had won over the pervious 40 years. These routes gave Federal Express a direct competitive advantage in such nations as Australia, Malaysia, and the Philippines, where landing rights were extremely difficult to come by. Furthermore, it allowed Smith to mix in Federal Express’s small parcels with Tiger’s cargo, providing a more efficient use of space. As another bonus, acquiring Tiger’s squadron of long haul aircraft allowed Federal Express to move its fleet of Dc-10s back to the higher volume parcel routes in the United Sates.

Second, Federal Express built a new facility in Anchorage, Alaska. This location is in the center of a transportation triad, putting Federal Express within seven hours of key markets in Asia, Europe and the United States. This move caught the competition off guard, forcing rivals to scramble to follow Smith’s lead. One expert claimed these two moves make Federal Express the “undisputed leader” in information delivery.