Number
7
FedEx Corporation
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One of the most memorable series of commercials ever to air on U.S. television debuted in 1981. It featured an over-caffeinated middle manager named Spleen, who monotonally spat out a rapid-fire and tonguedefying 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 observers attribute these overtly outrageous but slyly serious “get-it-there-yesterday messages,” spouted by fast-talking 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 its (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 not-so-subtle manner, was a self-effacing company filled 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 legendary fast-paced ads, was there to make us 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 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, an industry that would eventually help shape the incoming Information Age. A couple of centuries after Benjamin Franklin first remade the U.S. postal service, and a few decades after private companies first began shipping packages door-to-door, 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 service-oriented and technology-dominated, 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 Las Vegas. But Federal quickly took off, thanks to a creative business plan, as well as the public’s less-than-flattering opinion of the U.S. Post Office and a 1974 strike by the United Parcel Service. Planes, vans, and people decked out in the orange-and-purple 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 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 Beale Street.
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 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 99-percent 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 and Asia.
By Christmas 1984, the combination of ideas and followthrough gave FedEx control of more than half the world’s next-day 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 so-called “Brown Giant,” 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 next-day arena with 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 Pittsburgh-based RPS to eventually relaunch as FedEx Ground.
At the turn of the century, with our delivery needs growing even more pronounced, FedEx’s total daily package count approached 5 million. The company also was considered a “hot-but-safe” Internet play because of its peripheral (but not dependent) attachment to the medium, according to BusinessWeek. 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.
For example, package deliveries may have risen significantly, but they didn’t jump as dramatically as electronic messages 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 delivery-side bounty from the ecommerce explosion, arch-rival UPS has instead forged a commanding initial lead. FedEx specifically planned to use its $2.7 billion acquisition of RPS to provide the type of service that Internet buyers generally prefer (twoto five-day delivery), but 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 cybershopping 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 e-commerce shipments by 2003, the potential gap is enormous.
Naturally, a business visionary and tough ex-Marine 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.