FedEx Strategy: Value Creation, Differentiation & Competition

Introduction to the Express Delivery Industry

One of the major segments of the wider postal and cargo industries is the small package express delivery sector, which is an increasingly complex and competitive field. The complexity and competitiveness of this industry require the use of strategic approaches to enhance profitability. The contemporary express delivery industry in America originated from Fred Smith's vision for the Federal Express Company, commonly known as FedEx. FedEx has played an important role in the small package express delivery industry through the establishment of a system that contributed to next-day delivery of small package airfreight weighing less than 70 lbs. The company has also been instrumental in developing the use of standard packaging for shipments exceeding 70 lbs. This role has contributed to FedEx's value creation, product differentiation, and the effectiveness of its existing business model.

Brief History of FedEx

Federal Express was established in 1971 by Fred Smith, Jr., and later incorporated before commencing operations in 1973. The company was founded at a time when a sizeable portion of small-package airfreight was transported on commercial passenger flights. The major cargo carriers during this period were the main passenger airlines, which operated cargo planes and carried extra freight in passenger aircraft. Since the beginning of 1973, passenger airlines shifted significantly away from all-cargo planes as they began to focus on cargo freight carried within passenger planes.

The company was established based on Smith's belief that passengers and packages had significant differences between them, which contributed to the need to treat them distinctively (Hill & Jones, 2013, p. C84). Smith's main goal was to develop a system that could promote next-day delivery of small-package airfreight weighing less than 70 lbs. He founded Federal Express with his family inheritance of $8 million and venture capital worth $90 million. As a result, Federal Express became the first airline to develop a hub-and-spoke route system, centered on Memphis.

Since its inception, Federal Express has significantly invested in information technology systems and integrated those systems once the Internet was introduced, in order to offer effective services throughout its customers' supply chains. The company eventually developed a robust technical architecture integrated into Internet commerce through substantial infrastructural investment. However, the company's logistics and supply chain operations have experienced considerable challenges throughout its history. FedEx has also faced increased competition in the delivery sector, worsened by reports of declining growth in transportation volume. This contributed to the company's reorganization of operations to promote ease of doing business.

FedEx's Value Creation Frontier

The strategic competitiveness of Federal Express has been focused entirely on developing delivery speed and dependability as the company's major value creation frontier for its customers. According to Hill & Jones (2013), this core value creation frontier has been a crucial aspect in the search for opportunities aligned with Smith's vision of a contemporary fast-paced global economy. Generally, Federal Express believes that value addition to its operations can be achieved by gathering urgently needed materials within a short period of time. By doing so, the company would become a pioneer of a reliable and fast — though relatively expensive — delivery system.

In light of the recent increase in the number of customers, one of the four building blocks of competitive advantage that could benefit FedEx is innovation. Innovation will play a crucial role in ensuring the company obtains competitive advantages over rivals and sustains above-average profitability across all operations. Pine II & Korn (2011) state that using innovation as a building block for competitive advantage would require letting customers have instant access to and the ability to track their packages through online platforms. The growth in FedEx's customer base is fueled by customers' increased dependence on the company's speed and reliability. Speed and reliability are achieved through effective coordination of all logistic activities, which results in reduced costs and improved capability for value creation through management of the company's own supply chain.

Innovation as a core aspect of business development would also help FedEx enhance its competitive advantage over rivals. Most of Federal Express's major competitors in the complex and highly competitive small package delivery industry are using innovation to build enhanced technological capabilities. Through innovation, Federal Express will create value by improving technological capabilities to better manage its customers' supply chains. Additionally, improving technological capabilities through innovation would help the company match or surpass its main competitors.

Conclusion

The small package express delivery industry is a multifaceted and competitive industry that requires the use of strategic approaches to remain competitive and profitable. While Federal Express has pioneered the establishment of a new system in this industry, the company has had to address various issues to enhance its competitiveness and profitability. These issues include its value creation frontier, product differentiation and capacity control, and business-level strategy. Through continued focus on innovation, cost leadership, and strategic adaptation to global competition, FedEx is well positioned to maintain its leadership role in the express delivery industry.

References

Bate, J. D., & Johnston, R. E. (2013, March 13). Strategic frontiers: The starting point for innovative growth. Insigniam Quarterly.

Beard, D. W., & Dess, G. G. (1981). Corporate-level strategy, business-level strategy, and firm performance. The Academy of Management Journal, 24, 663–688.

Hill, C., & Jones, G. (2013). Strategic management cases: An integrated approach. Cengage Learning.

Pine II, B. J., & Korn, K. C. (2011, September 12). Creating customer value on the digital frontier. Harvard Business Review.