FDX Value Creation Frontier

The value creation frontier "represents the maximum amount of value that the products of different companies inside an industry can give customers at any one time by using different business models" (Hill & Jones, 2008). FedEx focuses on quality and excellence, as well as responsiveness to customer, as the core elements of its business model. Reliability and efficiency are also facets of business on which FedEx focuses. What this means is that FedEx can and should offer higher prices, because its business has higher costs. FedEx is basically offering a premium service within the package delivery business, in the express division. FedEx Ground is more reliability and efficiency, which implies that division should offer a lower price and move more towards cost leadership.

To maintain above-average productivity, FedEx needs to continually innovate. The company has been an innovator in the past, first when it was the first company to offer overnight service to other cities using the hub-and-spoke model with its aircraft. The company has also been a customer service innovator, and to this day its tracking capabilities far exceed those of its competitors, delivering better value for the customer. Because FedEx excels at the other building blocks of competitive advantage, the company can earn competitive advantage through innovation. Its close competitor, UPS, is also pretty good at the same elements that FedEx is, but FedEx has a history of being the innovation leader in the business. If it can maintain that reputation, then FedEx will most likely be able to maintain competitive advantage.

Product Differentiation and Capacity Control

FedEx has sought to differentiate itself by offering a comprehensive...

This is one element of differentiation that it uses, but UPS seeks to use that as well. These two competitors will often mirror each other -- UPS followed FedEx into the overnight business, but when UPS bought Mailboxes, Inc., FedEx bought Kinko's (Gross, 2004). So the brand and the history of innovation are still major differentiators. Most customers will also have brand loyalty, and that ends up being a large part of how different customers differentiate their service offerings, by enticing customers to be loyal to just one company.
Capacity control has always been a source of efficiency at the company. Now, it has already been established that efficiency is not a source of competitive advantage. This does not preclude the company from focusing on capacity control -- FedEx actually spends a lot of time worrying about this -- but FedEx is not going to outcompete UPS on capacity control because that's not where competitive advantage comes from when you are operating a premium courier company. FedEx does, however, seek to maximize the loads in its aircraft, which are the main cost driver. This is why it consolidates in major hubs, uses third party carriers for remote areas, and has a large number of different types of aircraft in its fleet.

Efficiency

Even though FedEx does not compete as a low cost provider, it is nevertheless a fairly efficient company for what it does. To make FedEx more efficient would require planes and trucks to wait until they were full before moving. That would, of course, run contrary to the company's business model. So while FedEx seeks to manage its…