What role did planning play in the beginning of the FedEx story and how do you think it is utilized now? Is it more or less significant than visionary ideas and emergent strategy?
MINICASE: FEDERAL EXPRESS
Federal Express provides an excellent example of an organization (and an entrepreneur) that opened up an unrealized market opportunity and began a new industry. It has been claimed that the ‘greatest business opportunities arise when you spot things your customer didn’t have a clue they needed until you offered it to them.’ The idea behind FedEx is simple. It is to provide a speedy and reliable national and international ‘overnight’ courier service for letters and parcels based upon air cargo. FedEx rightly claim to have invented the concept of overnight delivery, creating a whole new market where previously there was none. The company had a peripheral but significant role in the film Castaway, which featured Tom Hanks as a FedEx manager who survived the crash of a FedEx airplane only to spend several years marooned on a desert island. He held on to one of the packages from the plane and finally succeeded in delivering it. FedEx is, however, unusual in a number of ways. Before it could even begin, FedEx needed a nationwide (North American) distribution system with a fleet of planes and trucks – a huge investment in planning and resources. The business was the idea of Fred Smith, whose father was also an entrepreneur who had founded and built a successful bus company. When Fred was a student at Yale in the 1960s, he wrote a paper outlining his idea for a freight-only airline which delivered and collected parcels to and from a series of hubs. Traditionally parcels were shipped on scheduled passenger airlines as normal mail, whilst Smith proposed flying at night when the skies were relatively quiet. His paper was graded as a C. After graduating, Smith served as a pilot in Vietnam before he bought a controlling interest in Arkansas Aviation Sales, a company which carried out modifications and overhauls. Determined to implement his idea for a courier service he invested a $10 million family inheritance and raised a further $72 million from various sources, based on a number of independent but positive feasibility studies. FedEx took to the skies in 1973, offering a service in and out of 25 east coast cities with 14 jet aircraft. The demand was there, as he had forecast. Unfortunately, the rise in the OPEC oil price made FedEx uneconomical almost as soon as it started. Two years of losses and family squabbles – Smith was accused of ‘squandering the family fortune’ – were followed by profits and Smith’s belief, courage and persistence were rewarded. FedEx is successful because it delivers on time and speedily, and because it has a sophisticated tracking system for when something does go astray. There are now over 600 FedEx aircraft flying one million miles every two days. The central hub remains in Memphis in the US, but the flights are international. Three million packages from 200 countries are handled every night. FedEx’s courier vans cover another two million miles every day collecting and delivering these parcels. To ensure FedEx can maintain its service it flies empty aircraft every night, which track close to the pick-up airports and which are brought into service if they are needed. Its success has, of course, spawned competition. But with learning and emergence FedEx has stayed at the forefront of the industry it invented.
Questions:
- What role did planning play in the beginning of the FedEx story and how do you think it is utilized now?
- Is it more or less significant than visionary ideas and emergent strategy?
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