Click to add text
2015
CASE BACKGROUND
Headquartered in Memphis, Tennessee, and founded in 1971, FedEx is one of the largest express freight delivery
companies in the world, having about 57,000 drop-off locations, 700 aircraft, and 62,000 vehicles. FedEx does
business in over 220 countries and employs over 220,000 workers. The company is comprised of subsidiaries: FedEx
Ground, FedEx Express, FedEx Freight, and FedEx Services. Revenues for fiscal year-end of May 2014 were $45 billion,
or about $10 billion less than top competitor United Parcel Service (UPS). In fact, rival UPS is spending $2 billion to
expand internationally in Asia, Europe, and the Americas, and is modernizing its U.S. operations to automatically sort
packages. UPS expects its revenues to rise 7 percent annually through 2018, so FedEx needs an excellent strategic
plan going forward.
In April 2015, FedEx offered to acquire Dutch delivery firm TNT Express N.V. (TNTEY) for approximately $8.75 per
share, or $4.8 billion (€4.4 billion). However on July 13, 2015, the European Commission (EC) raised concerns about
competition being restrained in the event of the deal materializing. As the antitrust watchdog of the European Union,
the EC is investigating whether the impending deal, involving two key global players in the field of small package
delivery, abides by the EU Merger Regulation. The EC is concerned that the combined entity, if approved, would
dominate the market for small packages, thereby stifling competition in the space and causing prices to soar
CASE BACKGROUND
FedEx traces its history to 1971, when Frederick Smith (the current CEO) bought a controlling interest in Arkansas
Aviation Sales. The frustration of being unable to effectively deliver packages in 2 days created the idea of determining a
more effective way to handle freight. Smith named his new company Federal Express in hopes of obtaining a contract
with the Federal Reserve Bank and to draw public interest though the term Federal. The contract proposal with the
Federal Reserve was denied, but the company officially began operating in 1973 with 14 small aircraft from Memphis,
Tennessee, by delivering 186 packages to 25 different U.S. cities. Federal Express did not officially change its name to
FedEx until 1994.
FedEx first turned a profit in 1975 and was instrumental in lobbying for the deregulation of air cargo that was
passed in 1977. Deregulation allowed FedEx to use larger aircraft, and today, FedEx is the world’s largest all cargo fleet.
The firm reached $1 billion in sales in 1983, marking the first ever for a U.S. company to reach this level of revenues
without mergers or acquisitions within 10 years of operations. After a series of international acquisitions, FedEx starting
offering services to Europe, Asia, and China through a 1995 acquisition.
In 2014, about 90 percent of FedEx’s $1.2 billion investments were to boost capacity or infrastructure. As Christmas
approached, the company hired about 50,000 seasonal workers, up from 40,000 the prior year. The investment is
designed to address the rapid growth of consumer goods ordered online. Peak volume, referring to the busiest day of
the year, had climbed dramatically in recent years for FedEx, to 26-plus million packages on one day near Christmas.
That busiest day recently jumped 40 percent at rival UPS, to 31 million packages. Last-minute, holiday online free
shipping deals have proliferated in recent years.
ENVIRONMENTAL
A. ANALYSIS
GENERAL ENVIRONMENT
A.1 Opportunities
a.1.1 Socio-Cultural-Demographic Forces
• There is a rapid growth of consumer goods ordered online.
a.1.2 Economic Forces
• Peak volume, referring to the busiest day of the year, had climbed dramatically in recent years for FedEx, to 26-plus million packages on
one day near Christmas. That busiest day recently jumped 40 percent at rival UPS, to 31 million packages. Last-minute, holiday online free
shipping deals have proliferated in recent years.
• FedEx express is continuing its acquisition of foreign companies to establish domestic services for those areas.
a.1.3 Technological Forces
• FedEx express plans on an increase in expenses in 2015 and 2016 as the segment modernizes its airline and the trucking fleet.
a.1.4 POLITICO-LEGAL FORCES
• FedEx was instrumental in lobbying for the deregulation of air cargo that was passed in 1977.Deregulation allowed Fedex to use larger
aircraft.
a.1.5 ENVIRONMENT FORCES
• Working with customers on their own supply chain has helped reduced fuel usage.
A.2 Threats
a.2.1. Economic Forces
• Demand for air cargo rose over 2 percent from May 2013 to May 2014. High jet fuel prices historically was to blame for many customers
switching to trucking and slower means of transportation, favoring lower cost over more timely arrival of products.
ENVIRONMENTAL
ANALYSIS
A.2 Threats
a.2.2. Environmental Forces
• Operating a fleet of 700 aircraft, and over 60,000 vehicles, many of which are trucks, results
in a large consumption of fuel and added noise pollution.
ENVIRONMENTAL
ANALYSIS
B. Operating Environment
B.1 Opportunities
b.1.1 Rivalry Among Competitors
• FedEx acquired GENCO Distribution System, Inc. in January 2015.
B.2 Threats
b.2.1 Rivalry Among Competitors
• FedEx, UPS, US Postal Service, Deutsche Post, TNT International, and large national postal services in other
nations were the main drivers of package delivery, along with many smaller local companies. However,
with e-commerce growing, new delivery competitors such as Google, eBay, and Amazon are offing delivery
services.
• The United States Postal Service (USPS) is the oldest postal service in the country, existing for over 235
years.
• The firm (USPS) also is aggressively training employees better to reduce waste, making many rural post
offices part-time post offices, and offering discounts up to 58 percent to customers who mail 50,000
parcels a year.
• .With Amazon's size and packing volume, the firm can negotiate attractive shipping prices for its customers.
ENVIRONMENTAL
ANALYSIS
b.2.2 Potential Entrants
• Even with an improving economy and lower oil prices, freight demand outlook for
international packages by air travel is murky due to competition from large ocean shipping
companies, new ports, and quicker shipping times.
• b.2.3. Substitute Products
• UPS announced it is expanding its service that allows customers to pick up packages at
convenience stores, dry cleaners, UPS shops and many other businesses. UPS has found
many customers browse online, then shop in stores, because they are unable to sign for
packages delivered to their home during working hours.
ENVIRONMENTAL
ANALYSIS
C. INTERNAL ENVIRONMENT
C.1 Strengths
c.1.1 Marketing
• FedEx is also acquiring firms around the world in locations such as the United Kingdom, Poland,
China, South Africa, India, Brazil, and many others. It is FedEx’s strategy to establish a strong
footprint in these areas for domestic package delivery.
• The firm reached $1 billion in sales in 1983, marking the first ever for a U.S. company to reach
this level of revenues without mergers or acquisitions within 10 years of operations.
• FedEx also opened a new hub in Osaka, Japan, in 2014 to better facilitate transport of shipments
from Asia to the United States.
• FedEx Express claims to be the largest express transportation company in the world, and FedEx
Ground is a principle player in the United States and Canada ground package delivery system.
ENVIRONMENTAL
ANALYSIS
c.1.2 Finance
• FedEx has cash of $2.9 billion and expects enough liquidly moving forward without
needing additional debt.
c.1.3 Production/Operations
• Continuing its global expansion, FedEx opened a new hub in Mexico City in 2014 to help aid
in shipment to more than 800 shipping locations across Mexico. The new hub should better
enable 2-day shipping across Mexico and speed deliver between Mexico and the United States.
c.1.4 Organization and Management
• FedEx will strive to develop mutually rewarding relationships with its employees,
partners and suppliers. Safety will be the first consideration in all operations.
Corporate activities will be conducted to the highest ethical and professional
standards.
ENVIRONMENTAL
ANALYSIS
C.1.4 Production/Organization
.FedEx is one of the largest express freight delivery companies in the world, having about 57,000 drop-off locations,
700 aircraft, and 62,000 vehicles.
C.2 Weaknesses
c.2.1 Human Resources
.FedEx uses a divisional-by-product organizational structure, but the firm does not appear to have executives.
c.2.2 Production & Operations
. Operating a fleet of 700 aircraft, and over 60,000 vehicles, many of which are trucks, results in a large consumption of
fuel and added noise pollution.
.In LTL, labor costs are high, with many drivers being represented by the International Brotherhood of Teamsters Union.
c.2.3 Finance
FedEx reported 2015 revenues of $47.4 billion with net income of over $1 billion (down from over $2 billion in 2014).
ENVIRONMENTAL
ANALYSIS
D. EXTERNAL-FACTOR EVALUATION MATRIX
KEY EXTERNAL FACTORS WEIGHT RATING WEIGHTED RATING VALUES
SCORES
OPPORTUNITIES:
1.There is a rapid growth of consumer goods ordered online. .10 3 .30
2. Peak volume, referring to the busiest day of the year, had climbed dramatically in recent years for FedEx, to 26-plus .15 3 .45 (4) – superior response
million packages on one day near Christmas. That busiest day recently jumped 40 percent at rival UPS, to 31 million (3) – above ave. response
packages. Last-minute, holiday online free shipping deals have proliferated in recent years.
3. Working with customers on their own supply chain has helped reduced fuel usage. .10 2 .20 (2) – ave. response
Click to add text (1) – poor response
4. Fedex was instrumental in lobbying for the deregulation of air cargo that was passed in 1977.Deregulation .15 4 .60
allowed Fedex to use larger aircraft
THREATS:
1. Demand for air cargo rose over 2 percent from May 2013 to May 2014. High jet fuel prices historically was to blame .15 3 .45
for many customers switching to trucking and slower means of transportation, favoring lower cost over more timely
arrival of products.
2. FedEx, UPS, US Postal Service, Deutsche Post, TNT International, and large national postal services in other nations .15 4 .60
were the main drivers of package delivery, along with many smaller local companies. However, with e-commerce
growing, new delivery competitors such as Google, eBay, and Amazon are offing delivery services.
3. The firm (USPS) also is aggressively training employees better to reduce waste, making many rural post offices part- .10 2 .20
time post offices, and offering discounts up to 58 percent to customers who mail 50,000 parcels a year.
4. Even with an improving economy and lower oil prices, freight demand outlook for international packages by air .10 3 .30
travel is murky due to competition from large ocean shipping companies, new ports, and quicker shipping times.
TOTAL WEIGHTED SCORE 1.0 3.15
ENVIRONMENTAL
ANALYSIS
E. INTERNAL-FACTOR EVALUATION MATRIX
KEY EXTERNAL FACTORS WEIGHT RATING WEIGHTED RATING VALUES
SCORES
STRENGTHS:
1. FedEx is also acquiring firms around the world in locations such as the United Kingdom, Poland, China, South .15 3 .45 (4) – major strength
Africa, India, Brazil, and many others. It is FedEx’s strategy to establish a strong footprint in these areas for domestic (3) – minor strength
package delivery.
2. The firm reached $1 billion in sales in 1983, marking the first ever for a U.S. company to reach this level of .10 3 .30 (2) – minor weakness
revenues without mergers or acquisitions within 10 years of operations. (1) – major weakness
3. FedEx has cash of $2.9 billion and expects enough liquidly moving forward without needing additional debt. .10 2 .20
The USPS workforce is heavily unionized.
4. FedEx will strive to develop mutually rewarding relationships with its employees, partners and suppliers. Safety .10 3 .30
will be the first consideration in all operations. Corporate activities will be conducted to the highest ethical and
professional standards.
WEAKNESSES:
1.Fedex uses a divisional-by-product organizational structure, but the firm does not appear to have executives. .10 3 .30
2.Operating a fleet of 700 aircraft, and over 60,000 vehicles, many of which are trucks, results in a large .20 3 .60
consumption of fuel and added noise pollution.
3.In LTL, labor costs are high, with many drivers being represented by the International Brotherhood of Teamsters .15 3 .45
Union.
4.Fedex reported 2015 revenues of $47.4 billion with net income of over $1 billion (down from over $2 billion in .10 2 .20
2014).
TOTAL WEIGHTED SCORE 1.0 2.80
COMPETITIVE PROFILE
MATRIX
CRITICAL SUCCESS WEIGHT Fedex UPS USPS
FACTORS
Rating Weighted Rating Weighted Rating Weighted
Score Score Score
1.Price Competitiveness .20 3 .60 3 .60 4 .80
2.Service Quality .25 4 1 3 .75 2 .50
3.Customer Loyalty .25 3 .75 3 .75 2 .50
4.Global Expansion .30 3 .90 3 .90 2 .60
1.0 3.25 3.0 2.40
CPM Conclusion:
• The company shows a competitive advantage towards United Parcel
Service (UPS) and United States Postal Service (USPS).
G.ASSUMPTIONS
G.1 General Environment Stability:
• The socio-cultural-demographic forces are stable due to there is a rapid growth of consumer goods ordered online.
• The economic forces are stable due to Fedex express is continuing its acquisition of foreign companies to establish domestic services for those areas.
• The technological forces are stable due to Fedex express plans on an increase in expenses in 2015 and 2016 as the segment modernizes its airline and the
trucking fleet.
• The politico-legal forces are stable due to Fedex was instrumental in lobbying for the deregulation of air cargo that was passed in 1977.Deregulation
allowed Fedex to use larger aircraft.
• The environment forces are stable due to working with customers on their own supply chain has helped reduced fuel usage.
G2. Industry Growth Prospects:
• The market presents a promising opportunity due to FedEx acquired GENCO Distribution System, Inc. in January 2015
G3 Company’s Competitive Position:
• The competitive strengths of the company are service quality, customer loyalty and global expansion.
• The competitive strengths of the company are FedEx Express claims to be the largest express transportation company in the world, and FedEx Ground is a
principle player in the United States and Canada ground package delivery system.
• The competitive strengths of the company, FedEx has cash of $2.9 billion and expects enough liquidly moving forward without needing additional debt.
• The competitive strengths of the company, continuing its global expansion, FedEx opened a new hub in Mexico City in 2014 to help aid in shipment to more
than 800 shipping locations across Mexico. The new hub should better enable 2-day shipping across Mexico and speed deliver between Mexico and the
United States.
Statement of the Problem
The major problem of the business policy case is the frustration of not being able
to deliver packages in a more effective way to handle customer needs as evidenced
by the following:
1.) FedEx acquired GENCO Distribution System, Inc. in January 2015
2.) In mid-2015, the company signed a deal to buy 50 additional Boeing Co (BA.N)
767-300 freighters in the biggest order ever for the plane, allowing Boeing to
extend its production line well into the next decade.
3.) FedEx, in fact, missed its second quarter 2014 earnings estimates, reporting
$2.14 EPS versus Wall Street estimates of $2.22 EPS
4.) In 2014, about 90 percent of FedEx’s $1.2 billion investments were to boost
capacity or infrastructure
TOWS MATRIX STRENGTHS: WEAKNESSES:
1.FedEx is also acquiring firms around the world in 1.FedEx uses a divisional-by-product organizational
locations such as the United Kingdom, Poland, China, structure, but the firm does not appear to have executives.
South Africa, India, Brazil, and many others. It is FedEx’s 2.Operating a fleet of 700 aircraft, and over 60,000 vehicles,
strategy to establish a strong footprint in these areas for many of which are trucks, results in a large consumption
domestic package delivery. of fuel and added noise pollution.
2.The firm reached $1 billion in sales in 1983, marking the 3.In LTL, labor costs are high, with many drivers being
first ever for a U.S. company to reach this level of revenues represented by the International Brotherhood of
without mergers or acquisitions within 10 years of Teamsters Union.
operations. 4.Fedex reported 2015 revenues of $47.4 billion with net
3.FedEx has cash of $2.9 billion and expects enough income of over $1 billion (down from over $2 billion
Clickneeding
liquidly moving forward without to add additional
text debt. in 2014).
4.FedEx will strive to develop mutually rewarding
relationships with its employees, partners and suppliers.
Safety will be the first consideration in all operations.
Corporate activities will be conducted to the highest
ethical and professional standards.
OPPORTUNITIES: W1,O2,O4(Product Development)
1.1.There is a rapid growth of S1,O1 (Market Development) W2,O3(Product Development)
consumer goods ordered S2,O2 (Product Development) W3,O3(Backward Integration)
online. S3,O4 (Product Development) W4,O1(Product Development)
2.Peak volume, referring to the S4,O3(Product Development)
busiest day of the year, had
climbed dramatically in recent
years for FedEx, to 26-
INTERNAL-EXTERNAL
MATRIX
2.80
3.15
2.80
1.Market development
2. Market penetration
3. Product development
4. Forward Integration
5. Backward integration
6. Horizontal integration
7. Concentric diversification
STRATEGY OPTIONS TOWS IEM GSM TOTAL
A. INTEGRATION STRATEGIES
1. Forward Integration 1 1 2
2. Backward Integration 1 1 1 3
3. Horizontal Integration 1 1 2
B. INTENSIVE STRATEGIES
1. Market Penetration 1 1 2
2. Market Development 3 1 1 5
3. Product Development 11 1 1 13
C. DIVERSIFICATION STRATEGIES
1. Concentric Diversification 1 1
2. Conglomerate Diversification
3. Horizontal Diversification
D. DEFENSIVE STRATEGIES
1. Retrenchment
Backward Market Product
Integration Development Development
Rating Weighted Score Rating Weighted Score Rating Weighted Score
Overall Score 4.75 5.30 6.05
Key Strategic Factors Backward Integration Market Development Product Development
Weight
Rating Weighted Rating Weighted Rating Weighted
Score Score Score
Strength
1. FedEx is also acquiring firms around the world in locations such as
.20 2 .40 4 .80 3 .60
the United Kingdom, Poland, China, South Africa, India, Brazil, and
many others. It is FedEx’s strategy to establish a strong footprint in
these areas for domestic package delivery.
2.The firm reached $1 billion in sales in 1983, marking the first ever for
.10 3 .30 2 .20 3 .30
a U.S. company to reach this level of revenues without mergers or
acquisitions within 10 years of operations.
3. FedEx has cash of $2.9 billion and expects enough liquidly moving
forward without needing additional debt. .10 3 .30 3 .30 4 .40
The USPS workforce is heavily unionized.
4.FedEx will strive to develop mutually rewarding relationships with its
.05 2 .10 2 .10 2 .10
employees, partners and suppliers. Safety will be the first consideration
in all operations. Corporate activities will be conducted to the highest
ethical and professional standards.
Weakness
1.Fedex uses a divisional-by-product organizational structure, but the
firm does not appear to have executives. .15 2 .30 2 .30 2 .30
2.Operating a fleet of 700 aircraft, and over 60,000 vehicles, many of
.15 2 .30 2 .30 2 .30
which are trucks, results in a large consumption of fuel and added noise
pollution.
3. In LTL, labor costs are high, with many drivers being represented by
the International Brotherhood of Teamsters Union. .15 3 .45 3 .45 4 .60
Alternative Course of Action
• The proposed courses of Action were identified based from the strategic factor analysis.
Competitive profile matrix, Tows matrix,Internal-External Matrix and further validated
through the evaluative dimensions of the Grand Strategy Matrix. The Strategic Factor
analysis revealed that between Rapid Market Growth and Strong Competitive position. The
Competitive Profile Matrix indicated that The company shows a competitive advantage
towards United Parcel Service (UPS) and United States Postal Service (USPS), TOWs matrix
pointed out that Market Development, Product Development and Backward integration
are the best alternative courses of Action. The Internal-External Matrix revealed Intensive
and Integrative. Moreover, the analysis of the market growth and competitive position of
the company from the Grand Strategy Matrix indicated that the appropriate strategies
must be pursued by the company fell under Quadrant I. These findings could be attributed
to the Rapid Market Growth and Strong Competitive Position. In totality, the summary of
strategies matrix confirmed that the most feasible alternatives are A,B and C. Therefore
Strategies A,B & C would be best addressed the major problem of the firm under study.
ACTION PLAN
TIME
FUNCTIONAL AREAS OBJECTIVE STRATEGIES FRAME BUDGET
1. MARKETING To be the market leader in the Identify key factors that result in customer 3 years 5,000,000,000
industry (Percent) satisfaction with continuous study of customer (From the % of
needs: average increase
1.) in Operating
2.) Expenses
3.) forcasted)
4.)
2. FINANCE To fund production and Improve credit rating through regular and correct 3 years 0
expansion requirements of the payments of debt (Company has
entity already acquired a
long term loan
and improving
credit rating
would be the best
Option)
3.PRODUCTIONS/OPERATIONS To Improve Services provided Improve Policies and Procedures to help 3 years 6,500,000,000
consistently provide quality products and service. (Based on
Projected sales for
4 years.)
4.ORGANIZATION AND To improve governance, Reorganize the reporting procedures of different 3 years 500,000,000
MANAGEMENT accountability and control over business segments as well as the newly acquired (Based on
the organization. businesses. Operating
Expenses)
6.INFORMATION SYSTEMS To develop future strategies Develop a Management Information system to 3 years 8,000,000,000
with fleet modernization properly align different types of acquired businsses (Based
in both reporting and customer service. Proportionate to
the increase in
Sales Due to IT
programs being
costly the budget
is mainly fixated in
improving this
Sales Projections
Projections (in Millions USD)
Dec 31,2015 Dec 31,2016 Dec 31,2017 Dec 31,2018
Revenues 47,453 56,944 68,332 81,999
Assumptions:
Revenues are Increased at a base of 20% per annum
Cost of Sales proportionate to average GPR of 2015 to 2014 at 37%
Operating expenses would be 60% of sales per annum
Due to not acquiring any Non-Current Liabilities the Interest expense would be constant
Other Expenses/Income is removed from the budget to avoid inconsistencies in Projections
Projections (in Millions USD)
Dec 31,2015 Dec 31,2016 Dec 31,2017 Dec 31,2018
Revenues 47,453 56,944 68,332 81,999
Cost of Services 16,984 21,069 25,283 30,340
Gross Profit 30,469 35,874 43,049 51,659
Operating Expense 28,602 34,166 40,999 49,199
Operating Income 1,867 1,708 2,050 2,460
Interest Expense 235 235 235 235
EBIT 1627 1,473 1,815 2,225
Tax 577 516 635 779
Net Income 1,050 958 1,180 1,446
Budget Derived: 20,000,000,000 derived from the average increase
in operating expenses Rounded Off
END OF
PRESENTATION
