Founders: Frederick Wallace Smith.
Distinction: Created the nextday
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
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
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
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
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
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
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
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
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
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
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.