Monday, May 3, 2010


FedEx Corporation

Fact File:

Founders: Frederick Wallace Smith.

Distinction: Created the nextday

delivery industry

Primary business: Worldwide express delivery of packages and


Annual sales: $16.774 billion.

Number of employees: 141,000

Major competitors: DHL, UPS, U.S. Postal Service.

Chairman, President and CEO: Frederick W. Smith.

Headquarters: Memphis, Tenn.

Year founded: 1971.

One of the most memorable series of commercials ever to air on U.S. television

debuted in 1981. It featured an overcaffeinated

middle manager named Spleen, who

monotonously spat out a rapidfire

and tonguedefying

litany of names and places and

facts and figures to humorously hype the relatively new concept of overnight package

delivery …and the upstart young company that invented it. To this day many

observes attribute these overtly outrageous but slyly serious “getitthereyesterday

messages,” spouted by fasttalking

actor John Moschitta, with putting Federal

Express on the map.

Yet it really wasn’t the style, or even the content, that made these ads a success. It

was the company–and it’s (then) revolutionary but (now) obvious decision to aim

their commercials squarely at the secretaries, the mail room clerks, and the other

office functionaries who actually made the shipping decisions. Here at last, the

commercials conveyed in a notsosubtle

manner, was a selfeffacing

company filled

everyday with people that promised to pick up shipments when called, deliver new

packaging materials when needed, get reports (or whatever) to their destinations by a

guaranteed time, and charge us a reasonable price to do so. FedEx, implied these now

legendary fastpaced

ads, was there to make up look good whenever something

dropped into our laps that absolutely, positively had to be there overnight.

It worked too. Just like the microwave oven and videocassette recorder–which also

started changing things around the same time–Federal Express did give us what we

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wanted, when we wanted it. Through its carefully constructed image and undeniably

efficient service, the company quickly became the leading player in a burgeoning

industry, and industry that would eventually help shape the incoming Information

Age. A couple of centuries after Benjamin Franklin first remade the U.S. postal doortodoor,

FedEx radically redefined our related needs and expectations. In the process,

it completely refashioned the way our world communicates.

The son of a Southern businessman who made a fortune during the Depression,

Frederick Wallace Smith was an undergraduate at Yale in 1965 when the idea first

came to him. Smith saw society becoming increasingly serviceoriented



and he sensed an accompanying demand for the rapid and

reliable delivery of documents and small packages. Existing carriers, such as Emery

and Airborne, had long been shipping freight on commercial airlines. But smith

believed the task could be accomplished more quickly and efficiently by combining a

force of his own vans with a fleet of his own planes, operating them out of one central

hub. He wrote an economics term paper describing his vision. It earned him a C.

Smith, though, couldn’t shake the concept. In 1971, after two tours of duty as a

Marine pilot in Vietnam, he raised $40 million from investors and a like amount in

bank financing, threw in about $10 million from family sources, and founded the

Federal Express Corporation. On April 17, 1973, it opened for business by delivering

186 packages overnight to 25 cities in the United States.

The ride was predictably bumpy at first. Company legend tells of Smith meeting an

early payroll by winning $27,000 on a visit to Lao Vegas. But Federal quickly took

off, thanks to a creative business plan, as well as the public’s lessthanflattering

opinion of the U.S. Post Office and a 1974 strike by the United Parcel Service.

Planes, vans, and people decked out in the orangeandpurple

motif of FedEx were

soon ubiquitous across America.

Smith, not yet 30 when the company launched, stuck closely to the blueprint he

created with that “average” college term paper. Along with his own vans and planes,

he now also had his own hub at Memphis International Airport (selected in part

because it was fogged in only about 10 hours a year). Some observers initially

thought the unproven strategy of routing all packages through one city was as a bit

risky, but FedEx soon showed that it worked as promised and a number of

competitors eventually followed suit. The process in Memphis still peaks every night

around 11 p.m., when an army of employees begins unloading aircrafts arriving from

everywhere, sorting packages destined for anywhere, and then reloading planes that

are back in the air by 4 a.m. The whole ballet is so entertaining; in fact, it is now the

Tennessee city’s third most popular tourist attraction, behind only Graceland and

Beale Street.

Additionally, Smith committed himself to building a loyal employee base that was

willing to work long and hard to help FedEx succeed. He offered top wages, profit

sharing, no layoffs, stock options to managers, payments up to $25,000 for

suggestions that improved productivity, free flights on FedEx planes, and a

Guaranteed fair treatment personnel policy. He reported directly to the workforce

each year through a companywide “Family Briefing” video conference beamed to

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gatherings across the United States and around the world. He implemented brown bag

lunches so top officials could address smaller groups. And he ran the company with a

military gusto that proved contagious.

Such efforts, boosted by an apparently insatiable need for even faster and more

reliable communication, made the young company an instant hit. It went public in

1978, and soon began instituting a series of technological innovations that allowed it

to meet its deadlines with 99percent

accuracy. Perhaps the most significant, as Smith

later told reporters, was the early adoption of bar coding as the way to track these

packages–a pioneering concept that he picked up from the grocery industry. This was

just one of many interdisciplinary ideas he formulated after spending some four hours

each day with books, magazines, and newspapers devoted to a diverse array of

business topics. Smith’s goals also were furthered greatly by his tendency to surround

himself with bright young managerial talent, like Executive Vice President and COO

Jim Barksdale (who later went on to Netscape to even greater acclaim).

Corporate milestones were recorded regularly. In 1981, for example, the company

initiated service to Canada and introduced its trailblazing Overnight Letter. Two years

later, it became the first U.S. company to reach $1 billion in revenues without merger

or acquisition. And barely a dozen months after that distinction, it changed gears

completely and acquired Gelco Express International to launch operations in Europe

and Asia.

By Christmas 1984, the combination of ideas and followthrough

gave FedEx control

of more than half the world’s nextday

delivery business. It was now serving 40,000

communities with 30,000 employees and 10,000 vans. And it handed off an

impressive 500,000 overnight parcels each day.

Success bred an even hungrier competition, but Smith kept on his toes to retain the

overnight lead. One continuing obstacle was UPS, the socalled

“Brown Giant”,

which remained the nation’s largest overall package handler by far with some 1.8

billion delivered daily. When UPS announced it was entering the nextday

arena with

deliveries guaranteed by 3 p.m., therefore, Smith immediately advanced his own

deadline from noon to 10.30 a.m. When others tried to entice customers with lower

prices, Smith dropped his from an average of $26.29 to @ 19.36. And all the while he

kept picking up new companies to extend his reach such as his purchase of Flying

Tigers in 1989 to expand FedEx’s international presence. Such moves further

accelerated throughout the 1990s as the company bought routes in China from

Evergreen International, created a $16 billion logistics and distribution infrastructure

by acquiring Caliber System, and bought Pittsburghbased

RPS to eventually relaunch

as FedEx Ground.

At the turn of the century, with our delivery needs growing even more pronounced,

FedEx total daily package count approached 5 million. The company also was

considered a “hotbutsafe”

Internet play because of its peripheral (but not dependent)

attachment to the medium, according to Business Week. Its stock price initially

soared with all the dotcom mania. But, as many innovative companies discovered

when they reached a similar level of maturity, good news like that is often

accompanied by heady challenges.

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For example, package deliveries may have risen significantly, but they didn’t jump as

dramatically as electronic message zapped over the Internet instantaneously and

virtually for free–many carrying documents like those Federal Express once delivered

faster than anyone. So far, neither FedEx nor its competitors have devised a viable

way to halt this business drain or piggyback onto it.

And while many predicted it would reap great deliveryside

bounty from the ecommerce

explosion, archrival

UPS has instead forged a commanding initial lead.

FedEx specifically planned to use its $27 billion acquisition of RPS to provide the

type of service that Internet buyers generally prefer (twoto


delivery), but

had trouble integrating the new operation at first and wound up alienating customers

and falling behind. The implications, of course, are huge: In 1998, according to Zona

Research, UPS delivered about 55 percent of all cyber shopping purchases, the U.S.

Postal Service handled 32 percent, and FedEx captured only 10 percent. With

Forrester Research predicting more than 4.2 million daily ecommerce

shipments by

2003, the potential gap is enormous.

Naturally, a business visionary and tough exMarine

like Fred Smith is aggressively

fighting back. Residential ground delivery routes are being continuously expanded,

while the sales forces and delivery systems for both air and ground operations have

been combined to more closely resemble the convenient way that UPS offers

complementary services. It remains to be seen just how everything shakes out, but

wise observers won’t be giving Smith a C for this effort quite yet.

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