FedEx Innovation Research Paper

Excerpt from Research Paper :

Innovation & Creativity

FedEx was founded as an innovator in a logistics field that had never seen overnight delivery before. The company has always positioned itself as a premium provider in the business, based on its sophisticated technology, superior network size and quality of service. However, as the company has matured, its ability to be an innovation leader is being threatened. There are a few different issues at play. The first is that, as in any mature industry, the pace of innovation is generally slow. And as the only company that genuinely seeks to position itself as premium to its competitors, FedEx is the only firm truly trying to compete on innovation. Over the years, it has had some tremendous innovation successes, pioneering the ability to maintain communication with its drivers on road, with its tracking that allows customers to see where their packages are at every step of the journey, and in the hub-and-spoke model of delivery for courier services. Every major competitor - UPS, DHL, TNT -- imitates the things that FedEx pioneered, and usually not as well.

But in an industry with a slow pace of innovation, and where most customers have a high degree of loyalty so there is relatively little new business in play, the incentive to innovate is relatively low. Furthermore, there are high costs to innovate, for a company that has hundreds of thousands of workers scattered around every corner of the globe. Rolling out a new technology for its couriers will cost FedEx many millions. Finally, there is an additional challenge in that the pace of technological innovation outside of the industry is moving faster than the pace inside the industry. FedEx took years to roll out a handheld device for its couriers, and in that time the outside world had moved from Gordon Gecko-sized Motorolas to the first iterations of the iPhone. FedEx's new technology was obsolete before it was eve completed, and grossly overpriced compared with off-the-shelf solutions that had been developed in the time it took the company to get its handheld devices rolled out.

These issues point to a problem with innovation at FedEx. Given that innovation is one of the areas where the company has traditionally extracted competitive advantage, maintaining the ability to out-innovate competitors is critical to the company's business model. Therefore, having identified that there is a need to improve the innovation processes at FedEx, it is necessary to evaluate the current state of the company's innovation pipeline and determine what steps might be taken in order to improve that pipeline.

This paper will analyze how large corporations can manage innovation, with an eye to improving the pace and quality of their innovation. FedEx makes a good example company because even though it has a past history as an innovator, it has not really been one in a long time. There are a number of reasons why this is the case, and those will be explored along with potential solutions, in the context of the prevailing academic thought with respect to fostering innovation.

Frameworks/Models

The study of innovation is relatively new in academia. It arose out of the desire to understand one of the most dynamic, valuable processes in any business. In a rapidly-changing global economic environment, any one innovation can give a company advantage, but companies that can continuously innovate are the ones that develop sustainable competitive advantage. Innovation was once studied as part of economics, but has become in recent years more psychological in nature, focused on what steps a company can take, and what systems it can implement, in order to foster a continuous flow of innovation (West & Farr, 1990). To foster innovation, first a company needs to understand what innovation is. While it is tempting to take a "you know it when you see it" approach to innovation, the point of innovation as an academic discipline is to move beyond that and formalize the definitions and explanatory theories of innovation. Sawyer (2012) explains that innovation begins with creativity as its antecedent. A creative idea is one that is original and understandable, to which Sawyer adds useful or valuable. Arguably the latter is not strictly necessary but will be for a creative idea to go anywhere in a commercial context.

With creativity as its antecedent, innovation is when a creative idea is taken through the formal development stages in an organisation. Sawyer (2012) notes that companies will tend to have pathways through which they filter new ideas, and the study of innovation as a managerial discipline focuses on the design of these pathways, how organisations are designed around these pathways, and how innovation pathways are implemented within the organisation. This is intuitive. An organisation may have the ability to generate creative, valuable ideas constantly, but without a pathway to bring those ideas to market, the innovation will fail to exist, and the creative idea will fail to add value to the organisation. If creativity is the guy sitting in the pub thinking up ideas, then innovation is when he goes to his workshop, builds the prototype, and takes it to market.

The first critical concept that can be used to understand the process of innovation is the innovation system. In any organisation, there will be a system for handling creativity, and that will be the innovation system. In some companies this system is the corporate equivalent of a failed state -- there are few good idea and the ones that do emerge are quickly quashed. In other companies, there are specific pathways that not only encourage the generation of good ideas, but evaluate those ideas and create channels by which the best ones are developed and brought to market. Sawyer (2012) highlights three thinkers and the way they describe innovation systems -- the common theme is that they are comprised of multiple institutions, working together.

Edquist and Hommen (1999)

note that innovation systems are not linear -- there are myriad external influences that affect the system, one of which is demand. At FedEx, demand is a critical problem for the company's innovation system. The industry is mature, and mature industries are typically characterized, in microeconomic terms, by a focus on process and efficiency, as the companies within the industry compete in what is essentially a zero-sum game for business. Yet, it seems reasonable that even within the framework of such competition, innovation that improves systemic efficiency, or customer service, the two most important variables, would be welcomed. The reason why innovation is taking a back seat at FedEx might be related to NESTA's (2011) public innovation capability framework, which posits that impact on performance is related to innovation capability and innovation activity. If the company believes that innovation will have little impact on performance -- that is to say that innovation activities will have a negative net present value -- then the company may constrain its innovation pipeline as a matter of policy.

Organisational culture is another key element that is discussed in innovation frameworks. Culture is related to creativity, the key antecedent of innovation, but culture will also be reflected in the innovation systems that the company has developed. Lau and Ngo (2004) argue that the role of human resources, long considered a vital link in innovation, has been overstated, which leads one to think that organizational culture is a more powerful driver. This is logic in this -- hiring gets you creativity, but the structures of the innovation system of the organisation determine what the outcomes of that creativity are. Knight and Cavusgil (2004) determined a link between innovation as a value in organizational culture and firms that are not only more entrepreneurial but better able to adapt to internationalization.

One of the issues at FedEx is that the culture is not generally geared towards innovation. The workforce is large, but is almost entirely motivated by attention to short-term efficiency. This has been built into the culture, and additional cultural influence is more on towards the status of exceptional customer service. Innovation is not promoted internally within the company. The lack of emphasis on innovation means that the culture does not promote innovation. This, naturally, will have a negative impact on the organisation overall. There is little motivation for workers to be creative, but even if they have a good idea, few have any idea what to do with such an idea. As one noted "I could tell my supervisor, but even they would have no idea what to do with the idea. Everything goes through Memphis, which is a long way from here."

The unfortunate thing about the FedEx reality is that it excludes, rather unnecessarily, the possibility for innovations would improve efficiency. The 4Ps model makes the point that there are different types of innovation -- product, process, position and paradigm (Tidd and Besant 2013). Even if the head office prefers to centralize innovation, there should be room for innovation on things like process, as there are tens of thousands of people working on processes every day,…

Sources Used in Document:

References

Andersen, H.; Barker, P. And Chen, X. 2006. The Cognitive Structure of Scientific Revolutions Cambridge: Cambridge University Press.

Cooper, R.G. 2008. Perspective: The Stage-Gate® Idea-to-Launch Process-Update, What's New, and NexGen Systems Journal of Product Innovation Management 25 (3) 213-232.

Edquist, C. & Hommen, L. 1999. Systems of innovation: Theory and policy for the demand side. Technology in Society. 21 (1) 63-79.

Gatignon, H.; Tushman, M.L.; Smith, W. And Anderson, P. 2002 A Structural Approach to Assessing Innovation: Construct Development of Innovation Locus, Type, and Characteristics. Management Science 48 (9) 103-122.

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