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GM 105 – Strategic management
11/11/
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Table of Contents
I. Current situation
Current Performance
Strategic Posture
II. Corporate governance
A. Board of Directors
Top Management
III. external environment: opportunities and threats (swot)
A. Natural Physical Environment: Sustainability Issues
B. Societal Environment
Economic…………………………………………………………………………………………… ……....
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VI. strategic alternatives and recommended strategy
A. Strategic Alternatives B. Recommended Strategy……………………………………………………………..………………………
Vii. implementation
Viii. evaluation and control
VIX. References…..…………………………………………………..…. …………………………………………
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Fed Ex (FDX) has managed to see it through the recent recession and hard economic times by having a successful year in 2010. In the beginning of the year Fed Ex’s earnings were down considerably, but they managed to turn it around. FedEx’s share price rose from $55.43 to $83.49, a gain of over 50% throughout the year eclipsing other benchmarks like the S&P 500 and the DJIA. They also ended the year with a net income of $1.2 billion. FedEx had several measures in place to leverage against the recession and make it easier on the company during those difficult times. Revenue was only down 2.25% from 2009, due to the tough economy and the measures FedEx had taken to combat the recession. Fed Ex is also the dominant leader in market share, controlling about 49% of the market by volume. Their diluted earnings per share rose from $0.31 in 2009 to $3.76 in 2010, an increase of over ten times and almost an 8% increase for return on average equity due to a $1.2 billion goodwill charge, stemming mostly from the purchase and acquisition of new assets.
Mission Statement : Fed Ex’s mission statement is to produce superior financial returns for shareholders by providing services through focused operating companies. Expectations and requirements of customers will be met in the highest quality manner possible in each market segment. Safety will be the first consideration in all operations and corporate activities will be conducted and held to the highest ethical and professional standards.
Objectives : Fed Ex’s objectives are not explicitly outlined, however, their annual report for 2010 indicates that their objectives are to become the premier less-than-truckload provider, market leaders, and the most profitable carrier.
Strategies : Fed Ex’s strategy is to work seamlessly and simultaneously on three specific levels. First, they need to compete collectively by being seen at all times as one company, one brand. Second, they need to operate independently by focusing on individual networks and market segments in order to meet the distinct needs of every customer. Third, they need to manage collaboratively in order to maintain good relationships with their workforce, customers, and investors alike.
Policies : FedEx has a few strong policies such as auditor policy, whistleblower policy, privacy policy, and political contributions policy in place. These policies are in place to maintain loyalty to employees, customers, and investors by maintaining integrity. They deal with an array of
President’s Foreign Intelligence Advisory Board. He also is a Director for: Oracle, Time Warner, Revolution Health Group LLC, TechNet, and SubmitOrder.com. Barksdale serves on the Mayo Clinic’s Board of Trustees and as Co-Chair of the Markle Foundation Task Force on National Security in the Information Age (Bloomberg). Barksdale has served as a board member for FedEx since 1999 (and also served a prior term from 1983-1991).
John A. Edwardson, 60, is CEO and Chairman of CDW Corporation, a firm that provides technology products and services for business, government, and education markets. CDW provides solutions such as infrastructure optimization, mobility, disaster recovery, and security management. Previously, he served as President, CEO, and Chairman of Burns International Services (a provider of security services) and as President of UAL Corporation and United Air lines, Inc. He serves as a Board member for Focal Communications Corporation, Loomis, and Fargo & Co., and serves on the Board of Trustees of Purdue University and The Chicago Symphony Orchestra. He also serves on the Advisory Council of the University Of Chicago Graduate School Of Business. Edwardson has been a board member at FedEx since 2003.
Joseph R. Hyde III , 67, serves as the Chairman of GTx, Inc., a biopharmaceutical company that engages in the discovery, development, and commercialization of small molecules to treat cancer, bone loss, and serious medical conditions. He is the owner and President of Pittco Holdings, Inc., an investment management company and was Founder of AutoZone which was a division of Malone & Hyde. He also serves as a Director for AutoZone, Inc. is Chairman of the Financial Advisory Board at MB Venture Partners, and was a former Director for Wal-Mart. Hyde has served on the FedEx board since 1977 but has announced his retirement.
Shirley Ann Jackson, PhD., 63, is the President of Rensselaer Polytechnic Institute (RPI). She has served as a Commissioner of the U.S. Nuclear Regulatory Commission, as a Professor of Theoretical Physics at Rutgers University, and as Consultant in semiconductor theory to AT&T Bell Laboratories. She holds 18 honorary degrees, was awarded the New Jersey Governor's Award in Science and was inducted into the National Women's Hall of Fame. She also serves as: Chairman of the Board for the NYSE Regulation, Inc., Director for New Jersey National Bank, Trustee for Emma Willard School, Trustee for The Brookings Institution, a member of the Board of Governors for the Financial Industry Regulatory Authority, Inc., a member of the Audit, Nominating, and Corporate Governance Committees for the Smithsonian Institution, and as a director for the Council on Foreign Relations, Inc.. Jackson also serves as the Chairwoman of the American Association for the Advancement of Science, and has served as the Chairwoman of NYSE Regulation Inc. Jackson has been a FedEx board member since 1999.
Steven R. Loranger, 58, is CEO and President of ITT Corporation, whose Defense segment provides situational awareness, tactical information systems, communications, engineering, and electronic warfare systems for the military. He oversaw Textron's Six Sigma Integrated Supply Chain and Information Technology groups. He also is a member of the Board of Governors for Aerospace Industries Association and serves on the National Association of Manufacturers and the Congressional Medal of Honor boards. Loranger has been a Director for FedEx since 2006.
Gary W. Loveman , PhD., 49, is Chairman, president, and CEO of Harrah’s Entertainment, Inc. Prior to joining Harrah’s, he was Associate Professor of Business Administration at the Harvard University Graduate School of Business Administration, and holds a PhD in economics. He is also a director of Harrah’s Entertainment and a board member of Coach, Inc. Loveman has been a board member with FedEx since 2007.
Susan C. Schwab , PhD., 54, has held several positions in the U.S. Government and served as the U.S. Trade Representative Ambassador until 2009. She served as the Director General of the U.S. & Foreign Commercial Service of the U.S. Department of Commerce and was a Trade Policy Officer at the U.S. Embassy in Tokyo. She has served as President and CEO of the University System of Maryland Foundation, Inc. She holds a PhD in Public Administration and International Business. She is also a Director and member of the Audit and Finance Committees for Boeing and a Director for Caterpillar, Inc. Schwab was elected to the FedEx Board in 2009.
Joshua I. Smith , 68, is an Advisor of Datawind, a developer of wireless web access products and services. He is also the Chairman and Managing Partner of The Coaching Group where he functions as Coach and Senior Advisor/Consultant to CEOs of portfolio companies. Smith chaired the special Task Force on Minority Business Reform in Maryland. He was the Chairman of the U.S. Commission on Minority Business Development the Chairman of the National Urban Coalition. Smith has been a FedEx Director since 1989. He also serves on the Board of Directors of the National Black Chamber of Commerce. Smith has received over 300 awards, honors and other citations in recognition of his achievements (Bloomberg, Smith). He also serves as a Director for: StingFree Technologies Co., Caterpillar, Allstate Corporation, and as Vice Chairman for Comprehensive Care Corp. Smith has been a Director for FedEx since 1989.
David P. Steiner , 49, is president and CEO of Waste Management of Arizona, Inc. Prior to joining Waste Management, he was a partner in the regional law firm of Phelps Dunbar LLP. He is also a Director for Greater Houston Partnership and a committee Chairman for Tyco Electronics, Ltd. Steiner was elected as a FedEx Director in 2009.
Paul S. Walsh, 54, I the CEO and Executive Director of Diageo PLC at Diageo Ireland, a company that engages in producing, distilling/brewing, packaging, distributing, and marketing spirits. He was also CEO and COO of Guinness United Distillers & Vintners and was President and CEO of the Pillsbury Company. Walsh has held various financial positions in the food, brewing, and Inter-Continental Hotel fields. He is also a Non-Executive Director for Unilever PLC and Unilever NV, and is a former Director for General Mills, Inc. and Centrica PLC (an integrated energy company is the UK). Walsh has been a Director with FedEx since 1996.
FedEx is publicly traded as FDX on the NYSE. 800 million shares of Common stock are authorized, with 314,594,409 shares outstanding on 8/2/10. All stock holds the same voting rights. The following table shows the amount of FedEx common stock beneficially owned by each director:
Financial Expertise : FedEx uses financial targets as measures of success, therefore, an understanding of finance, financial reporting, and internal auditing processes is necessary for FedEx directors. Each of the below members of the board has an extensive background in finance:
Marketing Expertise: As one of the most recognized brands in the world, importance is given to advancing and protecting the FedEx brand. FedEx benefits from having directors with extensive marketing expertise and experience:
Technological Expertise: FedEx relies greatly on technology for operations, and market competition relies on the superiority and reliability of their technology networks. Thus, directors who possess a thorough understanding of technology applications are important:
Energy Expertise: FedEx is committed to protecting the environment, and has many initiatives in progress to reduce energy use and minimize their environmental footprint. As FedEx implements and advances these initiatives, FedEx relies on the expertise and direction of board members who are actively involved with environmental sustainability issues:
Government Experience: The transportation business is heavily regulated and directly affected by governmental policies and actions. Through their knowledge and connections, Directors with extensive government service help FedEx work beneficially and constructively with domestic and foreign governments:
Nominating & Governance Committee: The Nominating & Governance Committee, comprised of Shirley A. Jackson (Chairwoman), James L. Barksdale, and Steven R. Loranger, performs the following functions:
FedEx Corporation provides strategic direction and consolidated financial reporting for the operating companies that compete collectively under the FedEx name worldwide: FedEx Express, FedEx Ground, FedEx Freight, FedEx Office, FedEx Custom Critical, FedEx Trade Networks, FedEx SupplyChain and FedEx Services.
FedEx Corporation Executive Committee : The five-person Executive Committee plans and executes the corporation's strategic business activities.
Frederick W. Smith, founder, chairman, president, and CEO of FedEx Corporation: After earning a B.A. from Yale University in 1966, he served as an officer and pilot in the U.S. Marine Corps from 1966-1970. In 1971, when Smith was 28, he founded FedEx as “Federal Express Corporation.” Smith’s idea for an overnight delivery service was originally outlined in his Yale economics paper about the effects of automation on society. At that time, he identified that air freight had different requirements than air passenger service and that a company specializing in air freight (rather than supplementing passenger service) would be a profitable business niche. Smith’s vision, supplemented with insight gained during his military service, dealt with the demand side of FedEx and focused on location and speed rather than cost. His strategy had two important elements: The first included shipping packages through a central, tightly controlled hub to ensure overnight delivery. The second was to build a private aircraft fleet.
Smith has been politically active as a proponent of regulatory reform, free trade and “open skies agreements” for aviation around the world, and has advocated for vehicle energy-efficiency standards and a national energy policy. He has received numerous awards and honors, including: the Circle of Honor Award from the Congressional Medal of Honor Foundation, the Lone Sailor
Award from the U.S. Navy Memorial, the 2010 President’s Award from the Transportation Research Forum, the Marine for Life Award from the United States Marine Corps, the UCLA Anderson School of Management’s John Wooden Global Leadership Award, was named 2006 Person of the Year by the French-American Chamber of Commerce and received the Medal of Honor from the American Chamber of Commerce in France.
Alan B. Graf, Jr. , EVP and CFO of FedEx Corporation: He is responsible for all aspects of global financial functions (taxes, accounting controls, treasury, internal audits, etc.) Prior to the FedEx Corp. formation, Graf was EVP and CFO of FedEx Express. He joined the company in 1980 as a senior financial analyst. He serves on the Board of Directors for NIKE, Mid-America Apartment Communities, Methodist Healthcare and the Memphis and Shelby County Sports Development Corporation. Graf holds a bachelor’s degree and MBA from the Kelley School of Business, where he is a member of the Academy of Alumni Fellows. Graf was named a CFO magazine Excellence Award winner in 1998.
Robert B. Carter, CIO and Information Services EVP: He is responsible for setting technology direction, overseeing technology infrastructure and key applications, and managing the advanced networks and data centers. Carter joined FedEx in 1993 and has over 30 years of systems development and implementation experience. He has a bachelor's degree in Computer and Information Science and a master's degree from the University of South Florida. Carter's professional awards include: On Fast Company magazine’s "100 Most Creative People in Business" (2010); I nformation Week ’s Chief of the Year Award (2000, 2001, 2005); CIO magazine's 100 Award (2000, 2001, 2002, 2003, 2004, 2006); and InfoWorld Chief Technology Officer of the Year (2000). Carter is a member of the Saks Inc. board of directors and the University of Florida Foundation board of trustees. He also serves as chairman of the Capital Campaign for the University of Tennessee Hamilton Eye Institute.
T. Michael Glenn, EVP, Market Development and Corporate Communications, and CEO of FedEx Corporate Services: He is responsible for the marketing, sales, and retail operation functions for all FedEx operating companies. Glenn was senior VP, Worldwide Marketing, Customer Service and Corporate Communications for FedEx Express before FedEx Corp was formed in 1998. In that role, he directed marketing, communications, customer service, employee, and public relations activities. Glenn has held various Sales and Marketing positions since joining FedEx in 1981. He has a bachelor's and master’s degree, and serves on the board of directors for: Renasant Bank, Pentair, Inc., United Way of the Mid-South and Autism Speaks.
Christine P. Richards, EVP, General Counsel and Secretary: She is responsible for ensuring global activities are in compliance with international, federal, state and local government regulations, and is responsible for international and domestic legal, security and government affairs for the all FedEx operating companies and subsidiaries. Richards served as corporate VP of Customer and Business Transactions before assuming her current position in June 2005. She joined FedEx in 1984 from private practice. Richards earned her J.D. from Duke University.
Operating Company CEOs:
including critical inventory logistics, transportation management, and cross dock and dock services. Previously, Simon served as VP of FedEx Solutions for FedEx Services where he led a team of logistics and business consultants. Before joining FedEx in 1999, Simon was a business advisor and worked with Fortune 500 companies focusing on supply chain strategy development and operations improvement. Simon has a Bachelor of Science in Mechanical Engineering and a Bachelor of Arts in History. He is certified in production and inventory management (CPIM) from the American Production and Inventory Control Society (APICS).
Fred Schardt, President and CEO of FedEx Trade Networks: He is responsible for leadership and strategic direction of global transportation services, value-added logistics solutions, and comprehensive customs brokerage services. Schardt joined FedEx Trade Networks in 2008 as EVP and COO. Since then, he has realigned operations and standardized services to optimize international freight forwarding and has led aggressive international expansion. Prior to FedEx, he gained 35 ears of hands-on knowledge of the international freight forwarding, transportation and logistics industries. Schardt holds a Bachelor of Arts degree in Political Science.
Virginia C. Albanese, President and CEO of FedEx Custom Critical: She is responsible for critical-shipment carrier service across the U.S. and Canada and to other countries throughout the world. Since joining Custom Critical in 1986, Albanese has worked led the reorganization of the safety department, led a cultural initiative to refocus on customer satisfaction, reorganized the company's recruiting organization and expanded the operations leadership team. As VP of customer service and operations, she led the company's overall operations. Albanese has a Bachelor of Science degree and an Executive MBA. She serves on the boards of the Greater Akron Chamber of Commerce and The Boys and Girls Club of the Western Reserve.
International Executives:
Michael L. Ducker, COO, EVP and President FedEx Express International: In these roles Ducker leads all customer-facing aspects of U.S. operations and sets strategic direction for international business. For over eight years, Ducker has led efforts to open foreign markets, improve customs procedures, and support international economic policy reforms around the world. He started at FedEx in 1975 as a package handler in the Memphis hub. He has worked as president of FedEx Express Asia Pacific region in Hong Kong, has led the South East Asia and Middle East regions from Singapore, and served as VP of Southern Europe, based in Milan. He is Chairman of the International Policy Committee and executive board member of the U.S. Chamber of Commerce and a board member of the Coalition of Service Industries and Junior Achievement Worldwide. He holds an MBA.
David Binks , President, FedEx Express, Canada Region: Binks assumed this position in 2006, manages more than 5000 employees, and plans, organizes, and implements all corporate strategies and operations for Canada. Binks joined FedEx in 1986 as a pricing manager in the UK. He has held management positions in Europe, the Middle East, India and Africa Regions. A native of the UK, Binks earned a bachelor’s degree with honors and is a member of the Canadian Council of Chief Executives and the Board of Governors for Junior Achievement of Peel Region.
David L. Cunningham: President, FedEx Express, Asia Pacific Region (APAC): He is responsible for all corporate strategies and operations for the North Pacific operations based in Tokyo, the China operations based in Shanghai, and South Pacific operations based in Singapore. He assumed this position in 1999 after serving as regional VP. Cunningham joined FedEx in
Juan N. Centro, President, FedEx Express, Latin America-Caribbean Region (LAC): Cento is responsible for more than 3,400 employees in over 50 countries. He focuses on increasing FedEx Express’ presence throughout Latin America and the Caribbean, and integrating that region into the FedEx global network. He has over 30 years of experience in the air cargo/express transportation industry. He worked with the Flying Tigers Line and transitioned to FedEx in 1989 when the two companies merged. Prior to this position, he was VP of Mexico and Central America. He sits on the Board of Directors of Assurant, is part of the Board of Trustees for the Free Trade Area of The Americas (FTAA), sits on the Board of the U.S. Hispanic Chamber of Commerce, and was recently named Chairman of the Board of CLADEC (Conference of Latin American and Caribbean Express Companies). A Cuba native, Cento attended Miami-Dade Community College and Florida International University College of Business Administration.
Many top executives have international experience, have risen through the ranks, and have technological expertise. With the exception of Schardt, all key employees have worked for FedEx over 10 years and have been promoted from within. All but two of the senior executives have been in their current position longer than three years. This tracks with the FedEx strong training and leadership programs that are part of the corporate culture. As other companies are acquired, some executives from those firms are included as part of the management team, as was the case with William Logue and Juan Centro. Management participates in continued training and leadership programs. Many key executives sit as Directors on other boards; which expands their knowledge and generates additional views, contacts, and strategies that might not be gained or developed from working within the boundaries of FedEx corporate walls alone. Due to these practices and exposures, top management maintains cutting edge information and alliances that support their ability to sufficiently cope with likely future challenges.
FedEx management has a reputation for excellence in performance and leadership. Overall, key employees have long tenure with global expertise. As such, employees are attractive targets for other companies and are aggressively recruited. As part of their commitment to shareholders, FedEx compensates their employees at the upper 75th^ percentile for comparable positions.
Christine P. Richards 66,
One of the major risk factors that FedEx faces is the uncertainty of the natural physical environment. Their operations continuously reside in the environment of traveling each and every day making about eight million deliveries. “FedEx is one of the largest express transportation companies, delivering small packages throughout the United States as well as to 220 countries worldwide” (Datamonitor). Making these deliveries requires transportation through all kinds of weather. At any time, adverse weather conditions or natural disasters, such as earthquakes, tornadoes, volcanoes, or hurricanes can disrupt FedEx’s operations. Such events can result in the disruption of shipment levels, electrical service, property damage, increased fuel costs and lower revenues. Most forces have little to no notice of occurrence or indication of how strong or weak the force will be. FedEx has to have continuous strategic plans in place to press forward in every day operations. Each country’s physical environment forces vary from country to country. And finally, FedEx is vulnerable to any and all worldwide shifts in ecosystems.
Another physical environment phenomenon that currently affects FedEx Corporation is the global climate change and/or legal, regulatory, or market responses to such a change (Annual Report). As a result of the impact of global warming, U.S. and international legislative and regulatory efforts have been made to reduce greenhouse gas emissions. FedEx has to obey each regulation adopted in any country that is serves. This in turn can cause increased fuel, energy or capital costs. For example:
European Union Emissions Trading Scheme. This concludes that in 2012, all FedEx planes are subject to ETS requirements and will have to provide emission allowance in an amount equal to the carbon dioxide emissions from flights each year (Annual Report). This adds another substantial cost to FedEx which results in an increase to fuel and other energy costs.
Senate. The bill pertains to regulation of GHG emissions and some form of federal climate change legislation is possible in the near future (Annual Report). Without knowing the scope and extensions of any regulations concerning the global climate, FedEx has no certainty the effects on their cost or operation structure.
FedEx has made successful efforts to improve their vehicles in order to adapt to different physical environments in different countries. For example, they worked with Modec and
Navistar to develop a new all-electric commercial delivery truck. They are using the truck in densely populated, moderate-climate urban areas like London and Los Angeles. As the invention continues to improve, they plan on converting more vehicles.
“Coming through the toughest economic contraction since World War II, we stuck to our strategy, to our long view of the future” (Annual Report). Every corporation and company in the United States is being affected by the downturn of the economy. Some have made it, some are struggling and some have failed. FedEx has come out on the better end. They have made adjustments and big strides to keep their profit margin above ground. The Transportation Industry brings hope and opportunity for FedEx. The industry is comprised of freight transportation by road, rail air and marine. From year 2004 to 2008, this industry showed strong growth. If this industry maintains its growth, FedEx will continue to have strong demand.
In the economy, one of FedEx’s weaknesses is its dependence on the U.S. market. In 2009, 73% of its revenue was generated from the United States alone. To counteract that weakness, FedEx has made strategic decisions including the use of state-of-the-art Boeing 777F aircraft on Asian routes. This gives them a high competitive advantage as no other companies in the industry are able to fly nonstop across the Pacific Ocean. This decision has created a new avenue of opportunities for the FedEx Corporation in the Asian market. With the use of the 777F, they are able to give customer later cutoffs to prepare shipments and the 777F flies farther on less fuel and can carry almost 14,000 more pounds of freight. This in turn creates a big reduction in both cost and emissions per unit transported. The global economy condition is significantly portrayed in FedEx’s 2010 financial results. Over the course of the year, FedEx had a gradual increase in revenue mostly due to the increase of international shipping. Their business levels are directly connected to the purchase and production of goods as their primary service is to transport goods. When the purchases of both individuals and businesses decline, FedEx transports fewer goods. For the 2011 year, FedEx is in a strong position in comparison to competitors and other companies in the current economical state.
Going green has become a popular economic trend in the United States and Europe. FedEx has made big strides in reducing the amount of greenhouse gas emissions. They have turned to an energy alternative like many other companies. To reduce the amount of oil consumption in the United States, FedEx has turned to electricity. It is a scalable energy source with almost completely oil free fuel inputs. FedEx currently has the industry’s largest fleet of hybrid electric package-delivery trucks and is continuing to expand their vehicles. FedEx is also greatly affected by the availability and cost of fuel because they purchase huge quantities. To continue increased efficiency in the aviation section of the industry, FedEx has been working on transitioning to renewable fuel sources. Until then, they have been the most effective in mitigating the fuel cost expenses.
FedEx also has to pay attention to foreign currency even though most of the transactions are done in U.S. dollars. A recent fluctuation happened in 2010 impacting operations income. Through calculations, this change will decrease the operating of $33 million for 2011.
