If you had to identify one of those companies as excellent, which company would you choose?
On what basis did you make your decision?
More generally, what is excellence in business?
Prepare to describe in class the competition in the overnight package delivery industry, and the strategies by which those two firms are meeting the competition.
What are the enabling and inhibiting factors facing the two firms as they pursue their goals?
Do you think that either firm can attain a sustainable competitive advantage in this business?
Competition in the express delivery Market
The $45billion US domestic delivery market could be categorized into 2 segments. These consisted of letters weighing 0 to 2 pounds, packages weighing 2.0 to 70 pounds, and freight weighing over 70 pounds. The mode of transit categories were air and ground with the time categories being overnight, deferred delivery, three day delivery and regular delivery which occurred 4 or more days after pickup. The air express segment was a $25bn portion of the US package-delivert industry, and was concentrated in letters and packages, overnight and deferred, and air or air and ground. Virtually all FedEx business activities were in the air express segment of the package delivery industry, only 22% of UPS’s revenues were derived from its next day air business. FedEx and UPS’s competition for the dominance of the $25bn domestic air express delivery market foreshadowed in an unusually challenging future Background of the 2 companies
Fedex was formed in 1971, as the brain child of Fred Smith who started the idea of the business as a undergraduate term paper for a Yale economic class. Smith’s strategy dictated that FedEx would purchase the planes that it required to transport packages, whereas all other competitors used the cargo space available on passenger airlines. In addition to using his own places, Smiths key innovation was a hub and spoke distribution pattern, which permitted cheaper and faster service to more locations that his competitors could offer. In 1973 on the first night of continuous operation, 389 FedEx employees delivered 186 packages overnight to 25 US cities. FedEx saw a modest profit of $3.6m in 1976 and an average daily volume 19000 packages. Through the rest of the 1970s, FedEx continued to grow by expanding services, acquiring more trucks and aircraft, and raising capital. The formula was successful. In 1981 FedEx generated more revenue than any other US air deliver company. By 1981, competition in the industry had started to rise. Emery Air Freight began to imitate FedEx’s hub system and to acquire airplanes, and UPS began to move into the overnight air market. The United States Postal Services (USPS) positioned its overnight letter at half the price of FedEx, but quality problems and FedEx’s “absolutely positively overnight” ad campaign quelled that potential threat. In 1983 FedEx reached $1bn in revenues and seemed to own the market for express delivery. Durings the 1990’s FedEx :
* Proved itself to be an operational leader;
* Philosphy of “People Services Profit with emphasis of customer focus, total quality management, and employee participation. Extensive attitude surveying, a promote from within policy, effective grievance procedures that sometimes resulted in a chat with Fred Smith himself, emphasis on personal responsibility and initiative not only earned FedEx a reputation as a great place to work, but also helped to keep the firm largely free of unions (Best Employer to Work for Strategy, War for talent); FedEx benefited significantly from:
* Deregulation of the domestic airline industry which permitted larger planes to replace the smaller ones, thereby permitting FedEx to purchase several Boeing 727s which helped reduce its unit costs. * Trucking industry deregulation also permitted FedEx to establish and integrated regional trucking system that lowered its unit...
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