Strategic audit of a corporation

Strategic Audit

Current Situation. A. Current Performance

FedEx Corporation (NYSE: FDX) has struggled in the past couple of years as a result of the global economic downturn. For the 2009 fiscal year (year ended May 31, 2009), FedEx earned $35.497 billion in revenue, down from $37.593 billion the year before. The company's net income was $98 million, down from $1.125 billion the year before. FedEx has reported that they are gaining in market share, however, in all of the company's transportation segments (Carey, 2009). Unofficial sources estimate FedEx's share of overnight to be 49%, making it the market leader. The company's share of "fast delivery," a combination of overnight and 2-day, is estimated to be 31%, ranking it just behind USPS and just ahead of UPS (Schult, 2008). In ground shipping, FedEx lags UPS by a significant amount. The return on investment for FedEx last quarter was -0.5%, versus a five-year average of

%, indicating the damage that the economic slowdown has done to the company's performance.

B. Strategic Posture

FedEx is in the shipping business, mostly with respect to overnight shipping and ground package shipping. They also have businesses in office services, freight and customs clearance. The company's mission is vague. It is not measured by performance but focuses on ill-defined inputs such as "superior customer service" and "technological innovation" (FedEx.com, 2009). Objectives are a mix of growth and market share objectives, depending on the region. These objectives can be specific at the business unit level, and are generally congruent with the vague sense of organizational mission.

The company is engaged in multiple strategies. Right now, the focus is on improving efficiency to protect profits during the economic downturn. Aggressive marketing and pricing strategies seek to help build market share. International expansion strategies seek to grow the firm in markets such as China where there remains significant growth potential. The firm's policies include an emphasis on protecting employment for full-time employees, which helps to preserve market share by fostering stronger relationships with customers. An increase on policies to integrate the different business units from the customer perspective is also designed to build market share, particularly in the ancillary business such as freight forwarding and customs clearance. The company's missions largely reflect domestic priorities, since North America is the key business driver. Focus on international operations remains on growth, and largely supports the North American business except in key Asian markets.

II Corporate Governance

The current board is almost entirely independent, save for Fred Smith. They come from a diverse range of industries and aside from Smith do not own significant amounts of FedEx stock. FedEx stock is publicly trade. There are not different classes. Some board members have international experience (CEO of Diageo, for instance). Few have strong financial experience, however. Board members have varying amounts of tenure with the company. For the most part, board members stay clear of strategic decisions. They perform audit functions and set compensation but let the firm's executives run the company. Incentive compensation is in the form of cash bonuses, not options.

Fred Smith is the CEO. Each operating company has its own CEO and there are corporate-level executives for the group. Management is autocratic and decentralized. Major decisions are made at head office and diffused throughout the organization from there. Top management has limited international experience, although the company is building international experience in some of the next generation of executives. The members of the executive team have been with FedEx for many years. None have come from a firm that has been taken over -- all came up through Express. There were internal hires who evolved into their current roles as the company grew.

Top management has been responsible for company performance, as it directs the firm's reaction to the external economic environment. The company has a systematic approach to strategic management and is heavily involved in the process. Top management does not generally interact much with lower level management, but does with the board. FedEx is generally an ethical company, and its employment policies demonstrate a high degree of social responsibility. Management is sufficiently skilled to take the company forward.

III Opportunities and Threats

The economic environment is a strong threat, since FedEx revenues are strongly correlated with economic activity and to a lesser extent the cost of jet fuel. Although the company relies on information technology it is not at the forefront so can adapt more slowly. There are limited political-legal and societal implications. The most important force -- economic -- does vary but the North American market is by far the most important. Jet fuel prices do not vary significantly from country to country.

Industry competition is driven by overall demand levels, price and service. These forces do not vary globally. There is low threat of new entrants due to high entry costs. Buyers have average buying power due to competition. There is a high threat of substitution from electronic communications and slower shipping services. Rivalry among firms is intense. Unions, governments, interest groups have low relative power.

Customers are the only immediate factor affecting FedEx, as they have curtailed spending on shipping. A major threat is that customers will find ways to reduce shipping permanently. An opportunity for FedEx is to build out internationally to find more customers. The most important factors going forward will be the development of new customers and the global economic recovery.

IV Strengths & Weaknesses

The corporation is structural primarily on divisional (functional) lines, with sub-groups for geography. Decision-making authority is centralized. The structure is understood by everyone in the organization and is consistent with the company's strategies and objectives, including international operations. Competing organizations have similar structures.

The corporate culture is well-defined and consistent with objectives. The culture is oriented towards addressing the important issues faced by the organization. It is compatible with diversity. It is compatible with FedEx values, not the values of the different countries in which it operates.

Corporate Resources

The firm uses promotions for its customers, and also utilizes extensive advertising campaigns. Performance expectations for these programs may be stated internally but externally is only implied from the budget and financial results. Marketing is consistent with the firm's objectives and environment. The company is performing well, growing market share, expanding its product mix and seeking synergies between business lines. Most products are in fairly mature businesses, but overall the firm is still experiencing slow growth. The U.S. provides $25.819 billion in revenues; international revenues are $9.678 billion (2009 FedEx Annual Report, p64). The international segment is becoming increasingly important to the company. That said, the state of the economy is still a key driver. This trend will result in an increased decoupling of firm performance from U.S. economic performance. Many strategic decisions incorporate building out internationally, so strategy supports these trends.